All about fintech and Payday loans
Hot on the heels of the stricter regulations brought in by the Financial Conduct Authority (FCA) came a whole new set of online payday lenders. These businesses are less like the old guard, such as Wonga and QuickQuid and more resemble financial technology firms, or 'fintechs'.
These new payday lenders are all about playing by the rules and offering loan products that fulfil a clear demand for quick cash that can be paid back flexibly, such as over a number of instalments. For example, MoneyBoat is part of Evergreen Finance, a London-based fintech group offering other web-based finance platforms, as well as products that help small businesses to grow. We are happy to refer to our short-term loans like payday loans, but the industry has changed drastically and we have very little in common with the disgraced payday lenders who were rightly put out of business by the FCA.
How has the internet and tech changed the way we think about loans?
It's difficult to remember, but not all that long ago anyone looking to take out a loan or open an account rarely looked beyond their own high street bank. There was little choice in the market and even products offered by competitor banks or building societies often seemed inaccessible.
Now, big banks are facing a major new challenge in the form of online alternative financial service providers, challenger banks and financial apps. These not only offer masses of choice, but they arm consumers with insight into their own finances and a level of control over their outgoings that they never had before.
More and more people are turning their backs on traditional banking altogether and have opened online-only accounts with new fintechs with a more appealing offering and brand. With a greater emphasis on cutting-edge tools and flexible options like pre-pay cards, these new accounts often offer consumers more control than traditional bank accounts ever did.
When it comes to borrowing, the same is true. Particularly with regards to short-term loans and payday loans, which are almost exclusively offered online. Gone of the days of seedy cheque-cashing shops. Now payday loans can be taken out proudly and with the knowledge that there are now significant caps on the costs to the consumer.
If I look for an online loan, will I have more choice?
If you are looking to take out a payday loan, you will certainly have more choice if you look online. Banks still rarely offer short-term loans as they are more risk-averse than new payday lenders. Direct lenders almost exclusively operate online and this means that applying is usually a quick and simple process.
Fintechs and lenders offering short-term funding to all kinds of borrowers should display everything you need to know on their websites. This means it should be easy to make an informed decision. So, once you've decided how much you would like to borrow, how long you need to pay it back and how much you can afford to pay in each instalment, you can search online to find lenders that suit your criteria before checking that you met theirs.
Are payday loans as valid as bank loans?
Providing you borrow through a lender that is FCA-authorised, then, yes. Many people still prefer to bank and borrow with well-known high street banks, simply because it's what is familiar and comfortable to them. That's a valid reason to choose this path, but it cuts out an enormous and growing section of the market, which can sometimes be more competitive.
The FCA imposes strict rules on payday lenders, including caps on how much payday loans can cost you, even if you default on the loan. These caps offer a huge amount of protection for consumers who are ready to take the leap and look for an online loan after dealing with high street banks all their lives.
Is it easier to keep track of online loan costs?
It can be easier to keep track of the cost of your loan and your repayment schedule when you take out an online loan as the information about rates and terms is available at your fingertips. Some lenders may even make tools and apps available to borrowers to allow them to track their repayments and interest charges, for example - further reducing the risk of missing scheduled payments and being charged a penalty.
What's better, an online loan or a bank loan?
There's no hard and fast answer to that question, as it all depends on your individual circumstances and requirements. There are advantages and disadvantages of both online and bank loans to examine:
Advantages of online credit:
- You may have a wider choice of providers
- You can see terms and charges laid out clearly
- There may be a wider choice of loan types
- You may be offered more flexible repayments schedules
- You may not have to meet quite so strict eligibility criteria
- The application process can be quicker and easier
- You may have the option to receive funding more quickly
- It's easier to shop around and compare loans for lower rates
Disadvantages of online credit:
- Online lenders tend to be relatively new businesses without the reputation of high street banks
- You may feel loyal to your bank
- Your bank may have offered you a very good rate
- You may struggle to find a lender who will offer enough money
- You may not find a lender who will lend over a long-enough term
- There is a risk that lenders could be unregulated
- Some irresponsible online lenders may offer you loans that you can't afford to repay
Does the internet make payday loan brokers obsolete?
Now that we can search the web for the exact types of loans we are looking for, using terms like 'fast loans', 'payday loans', 'quick loans' or 'cheap personal loans' for example, there are very few cases where using a broker would offer an advantage to a borrower.
Brokers are there to help you find a loan and a lender that is right for you. They often take your details and perform a number of credit searches on your behalf to find a good rate. However, this approach to damage your credit score, as every loan application you make, even if it is approved, can have a negative impact on your credit report and will stay on it for two years.
Brokers also charge a fee, either payable by you, as a borrower, or by the lender they recommend, which could call their impartiality into question. Getting the best rates is actually easy without the help of a broker, as online tools such as comparison sites, as well as lender's FAQs and loan calculators, are there to help you work out the cost of borrowing, and they do this very accurately.
In conclusion, a number of fantastic fintech businesses now offer short-term loans. In fact, the industry has stepped up to fill the gap left by the closure of many traditional payday lenders, which have closed down following stricter industry regulations introduced by the FCA. Providing you keep an open mind about the type of loan you want and the lenders you are willing to use, the internet is full of brilliant financial products for all kinds of borrowers, so get searching!
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