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The cost of payday loan
Since January 2015, payday lenders in the UK are capped at a maximum charge of 0.8% daily interest and an APR of around 1,270%. The FCA implemented this cap to protect consumers from high-cost lending, ensuring no borrower pays more than double what they borrowed, while some lenders offer lower rates to remain competitive. To reduce loan costs, borrowers can compare daily interest rates, consider early repayment options, or leverage good credit ratings for potential discounts.
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The cost of payday loan
- 1. What is thecost of a payday loan? 1 By Quiddi Compare
- 2. Following the introductionof a price cap in the payday loan industry in January 2015, lenders can only charge a maximum of: 0.8% daily interest £124 per £100 borrowed This works out to an APR or around 1,270%. 2
- 3. About the FCARegulation The FCA put a price cap into place to challenge high cost lending. The new limit on how much lenders can charge means that no customer will ever pay double what they borrow. Although there is a price cap in place, some payday lenders choose to charge less as a way of being more competitive – this is why their APR might be lower. 3
- 4. Why is APRusing for payday loans? APR is used for payday loans because it is the benchmark and measure for all financial products and is easy to make comparisons. The APR tends to run in the thousands of per cent because the monthly rate is calculated as if though it were taken out for an entire year. This is why APR can be misleading, especially when a payday loan only lasts a couple of days or weeks. 4
- 5. Instalment lenders thatoffer loans over 3,6 or 12 monthly payments tend to have a lower APR to reflect the nature of an annual loan. 5
- 6. How to lowerthe cost of your payday loan 1. Using a comparison site like Quiddi allows you to compare price. Instead of APR, we recommend comparing the daily interest rate, cost per £100 borrowed and representative example to get a true idea of the cost of a loan. 2. Some payday lenders will charge less to customers who have good credit ratings because they are deemed a lower risk of default . 6
- 7. 3. Repay early Somelenders allow you to repay your loan early and since you are charged a daily interest, you will only pay the interest for the days that you have had the loan open – making it much cheaper. If you are in a position to clear your debts early, it is certainly worth doing so! 7
- 8. Useful Links Visit theQuiddi website for a simple and easy to use payday loan comparison. Warning: late repayment can cause serious money problems. For help, visit https://www.moneyadviceservice.org.uk/en 8