How to find the right payday lender:
In this article:
- What is the difference between a payday lender and a broker?
- How to know if you’re applying to a lender or a broker
- Aren’t all payday lenders the same?
- Why you should compare payday lenders
- How payday loan comparison sites work
- Choosing the best payday lender for your circumstances
A payday lender is an organisation that will take and process your online application and make a decision (usually within a minute or two) as to whether they can lend to you based on their own credit scoring and risk rules. They will lend you their own money and you will repay your loan back to the lender.
A credit broker is a company that will take your application and effectively ‘sell’ the application to either one or a group of lenders. In payday lending it is rare for a broker to work with just one lender so usually the application will go to multiple lenders. Brokers can be effective in getting you a loan that you need, however, it may not always be the best deal you could get.
We are going to take a look at some of the advantages and disadvantages of using brokers or lenders:
Using Payday Lenders Directly – Advantages:
- Your application will be dealt with directly and your information kept only with the lender (unless you agree otherwise)
- You will be able to see the cost of the loan before applying
- There are no fees to apply for a loan
Using Payday Lender Directly – Disadvantages:
- If you are declined and decide to apply with another lender, not only is this damaging to your credit report it is time consuming completing multiple applications
Using Payday Loan Brokers – Advantages:
- Brokers will generally have access to a large network of lenders looking for leads to buy
- You may be presented to a lender that you would otherwise not have considered or heard of
- The service is generally free to use (you should always check this)
Using Payday Loan Brokers – Disadvantages:
- When you apply, the broker doesn’t know which lender (if any) will accept your application, so you cannot see reliably how much the loan would cost before submitting an application
- Brokers have a tendency to resell leads and data to multiple sources unless you explicitly tell them not too
- You do not always know which lenders your application is going to
Ultimately the decision is yours as to which route you would prefer to take when applying for a loan. We always recommend approaching lenders directly as we feel that this is a safer option and gives you total control over where and who you are applying to.
As you can see, both options have their advantages and disadvantages. The payday lending broker market has undergone huge change and where in previous years it had a rather bad reputation now brokers are far more regulated and act more responsibly when helping customers.
Some brokers have websites that look and feel exactly like a lender website. They will have sliders on the site so you can work out how much a loan will cost and the wording will be similar in terms of how much you can borrow. They will also have representative APR’s on the site.
It can be difficult at first glance to know if the website you are on is that of a broker or a lender, however, there are certain rules that brokers must follow to make it clearer to customers what services they offer.
In January 2015 the Financial Conduct Authority introduced new rules which included a requirement that financial promotions must state prominently that the firm is, or is acting as, a credit broker and not a lender. The rules also make clear that a statement is not classed as prominent unless it’s presented in such a way that it is likely the average customer’s attention will be drawn to it.
Such notices should be prominent however you may also find the information you need in the footer of a website, directly at the bottom with the small print.
Prior to the governance of the FCA, whilst the concept of a ‘payday loan’ was universal, there were really no two lenders the same.
In a loosely regulated market there were hundreds of payday lenders all charging different rates and fees, including:
- Charges for sending the funds to your account the same day (up to £25)
- These ‘same day funding’ charges would either be added to your loan or deducted from the amount sent to you
- Late payment fees up to £30 for every failed transaction/repayment
- Fees for a lender not being able to debit your repayment from your debit card (up to £5)
- Multiple rollover fees where you would repay only the interest. At this time, you were able to rollover the loan an infinite number of times
- We once had a lender on that had a representative APR of over 13,000%
As we are now in a far more regulated market, all of the above have gone and we’re now in a more streamlined industry with strict rules and guidance.
With an interest rate cap (0.8% per day) it was assumed that many lenders would all charge the maximum allowed and there wouldn’t be much information to compare lenders – especially if they all charge the same.
Certainly, once the FCA rules came into force in January 2015 there was a period where nearly all lenders sat on the interest rate cap and there wasn’t really a lot of difference in products available, nearly all lenders charged the same.
However, once this period of uncertainty passed we started to see shifts in pricing and a more competitive market emerging. Recently we have seen innovative new products being added to allthelenders. Lenders are starting to compete on price and many now charge below the maximum allowed to make their loans more attractive.
In short, not all lenders are the same. Whilst the basic principle of lending remains the same, most lenders all have a unique selling point or have some point of difference. This market is very much evolving and we expect over the coming months and years for this trend to continue.
Comparison by its very definition is about understanding the differences between 2 or more products. There is never a ‘one size fits all’ solution in finance and especially with personal credit.
No two people are the same and no two lenders are the same, where one lender may be suitable for one person they may not necessarily be suitable for another.
It’s also true that, particularly in this market, the market leaders or those with the biggest advertising budgets are not always the best or cheapest loan providers. Comparing payday loans is as essential as comparing your gas supplier or your car insurance. Let’s take a look at an example of why comparing payday lenders can save you money:
Let’s assume you want to borrow £300 over 3 monthly instalments, how much could you save by using our comparison site instead of going directly to the lenders you may have heard of before:
This simple comparison shows that you could save as much as £94.08 in 3 months, just by making a comparison. This is using a very small sample of lenders, actual savings can be much larger if you consider using lenders that are not so well known.
It is always in the borrower’s interest to ensure that they are getting the best deal possible, and this is particularly important when you’re dealing with high-cost credit like this.
Price comparison websites all work differently and are driven by different factors, these could be profitability, having the widest choice of providers in the market or trying to provide a fair service for their customers.
In recent years some comparison sites have come under scrutiny for not always showing the best deals available and instead promoting the deals where the comparison site earns the greatest commission.
Focusing on this market, price comparison sites are a new initiative and we were the first full price comparison site to come into the industry.
By full comparison site, we mean a site where you can actually run a comparison based on variables such as the amount you want to borrow and the duration. In our industry there are many websites that claim to be Price Comparison Websites, however all they offer are a list of different loan providers and they may tell you how much a certain amount over a certain period will cost you, for example, £100 borrowed for 30 days.
The reality of this is that this information is of no use at all, unless you actually wanted to borrow £100 for 30 days which is very unlikely.
Many comparison sites in the payday loan sector work on commissions and will often place the lender that is willing to pay the most commission at the top of their lists even though they may not be the cheapest deal for the lender.
Building a comparison engine for payday and short term loans is no easy task and is one that many would not want to undertake which is why many take the approach to list lenders and call themselves comparison sites where, in our opinion, they are directories and not comparison sites.
allthelenders work differently. We put the customer before anybody else and we do not have different commissions for every company we work with. Here’s what we do:
- We offer independent and impartial comparisons
- We are not owned by a lender or anybody else
- Every lender pays the same fee to us regardless of where they may appear when a comparison is made
- Lenders cannot pay more to appear higher up the results, the comparison works on the total cost of the loan
- Where more than one lender charges the same rate, we display them in a random order
We are all about the customer getting the best rate possible. We do not allow adverts or promotional banners on our website to try and distract you.
We are paid a small commission by a lender every time a user clicks through to their website to make an application or look around. We are not paid whether you get the loan or not, so we are not interested in pushing hard sales techniques – it doesn’t matter to us which lender you choose!
Whilst many payday and short term lenders may look the same on the surface, deciding which lender you apply to is still an important decision as they all have different features. You need to ensure that the lender meets all of your requirements, so you should research not only what amounts they can lend but other things such as:
- Does the lender allow you to repay early?
- Does the lender have an online account management area so you can manage your loan online?
- Does the lender have a responsible lending policy?
- Does the lender have a trust rating and independent reviews (like Trustpilot etc)
- Do you meet their lending criteria, this should be displayed on their website or within the FAQ’s
- What will happen should I miss a payment, will I be charged and how much?
allthelenders has the largest choice of direct payday loan lenders and we can help you make this decision with independent and impartial data. We give you more information than any other site all designed to help you make better borrowing decisions.
Interested in a payday loan? Check out our unique eligibility checker to find the most suitable lenders for you.