Payday Loans – Small Loans On A Large Scale?
Anyone who needs additional liquidity in the short term to bridge a financial bottleneck, for example, caused by an urgently needed repair to their own vehicle, usually falls back on overdraft facilities. However, overdraft facilities in particular are considered very expensive and also a potential debt trap. But more and more people are turning to so-called mini-credit offers – for good reason.
For some time now, financing has no longer been based exclusively on the classic standard loans granted by banks, such as instalment loans or overdraft facilities. In addition, the range of offers has increased and it is no longer only the classic credit institutions that grant loans. One example is the loans from private individuals, which are made available by private individuals via appropriate intermediary platforms. Another type of credit that has become increasingly popular in recent years is the so-called mini-loans.
Three classic standard loans from banks
If you take a look around the banking landscape and inquire about loans, you will quickly notice that most banks offer three standard types of loans:
- Instalment loan
Of course, there are often some other types of loans offered, but in more than 80 per cent of the cases, the loan taken out is one of the three previously mentioned loans. Although the banks can usually cover over 80 per cent of their customers’ financing needs with these three types of loans, the respective solution is not always the optimal one. This is one of the reasons why some specialist providers now offer so-called payday loans, which certainly fill a gap in the market that has existed until now.
What is a payday loan
The essential characteristic of the payday loan or short-term loan can already be deduced from the name. This loan is made available for a short period of time for very small loan amounts, which usually start at 100 GBP. In addition, there is a limit, because with most payday loans providers the loan amount may not exceed 1,500 GBP.
Another feature of payday loans is that this form of lending is not offered by ordinary banks. Another typical feature of payday loans is that the maturities are very short. They usually range from one to three months.
In the overview, the following are the main characteristics that make payday loans stand out and distinguish them from other types of loans:
- Small loan amounts between mostly 100 and 1,500 GBP
- Specialist provider as a lender
- Short maturities of one to three months (in exceptional cases even longer)
Who offers payday loans?
As mentioned before, it is not the usual banks that offer payday loans. Instead, there are special providers, whose business is mostly even exclusively cash advances, as payday loans are also called.
Currently, the following active providers specialising in payday loans are on the market:
Before you decide on a payday loan provider, it is definitely a good idea to compare the offers. Therefore you should, of course, pay attention to the loan interest, but also to available additional services such as
- Multiple rate option
- Express bank transfers
- Costs of late repayment
- New customer campaigns
With some lenders, additional costs must be incurred for certain services. This has become a typical feature of payday loans, especially if you are not satisfied with the standard offers. Nevertheless, there are considerable differences in the costs of the so-called additional options between the lenders.
The loan interest rate: What do payday loans cost?
The main cost factor for a payday loan does not necessarily have to be the loan interest rate, although it is, of course, payable by every borrower. The average interest rates for payday loans are about the same as for overdraft facilities, so that you as a customer usually pay between 7.95% and 145% interest. Because the terms are usually between one and three months, the interest sum is relatively low despite the high interest rates. If, for example, you take out a mini loan of 1,000 GBP with a term of two months, you only pay a total of around 18 GBP in interest at an interest rate of 11%. From this point of view, the payday loan would be favourable, if the additional options with costs were not added.
Chargeable additional options are not uncommon with payday loans
As already mentioned, there are additional options for many payday loans, apart from the loan interest rates, which are subject to costs. Of course, the borrower does not have to make use of these, but in some cases, the additional offers are an interesting and attractive solution. As a rule, these are more flexible and improved services, if you compare the options with the standard offer of the respective lender.
Depending on which lender is involved, the following fee-based additional options, in particular, can be found:
- Instant payout
- Multi-rate option
- Higher loan amounts
- Faster execution time
In order to make these additional options more attractive for the customer, some lenders may have deliberately designed their standard conditions not to be very customer-friendly.
For example, some lenders offer a processing time that is usually between 3 and 10 working days. If the customer wants to receive his money much faster, which would not be surprising given this standard processing time, he can choose one of the additional options mentioned. However, it is not uncommon for between 50 and 100 GBP in additional costs to be put on the table.
The situation is quite similar with other additional offers with costs, such as the multi-rate option. The borrower has the option of repaying the loan within four or five months, for example. If you need a slightly larger amount, you can also find a chargeable additional option with some providers.