How to compare payday loans

With so many variables, offers and risks out there, it can be hard to know where to start when comparing payday loans. Although the facts and figures may seem daunting, there are a few baseline questions you can use when comparing payday loans, bank loans, and other types of loans to help you make the right decision.

So, whether you need to compare loans with bad credit or find the right payday loan lender to cover an unexpected cost, we’ve got some top tips to help you. For more advice, see our guide on finding a lender you can trust using the FCA registration checker.

In this guide:

• What type of loan do I need?
• How can I compare different types of loans?
• What other factors can I use to compare payday lenders?
• How Moneyboat can help

What type of loan do I need?

This is probably the first question you need to ask yourself. There are many different types of loans on the market, which can be categorised as either unsecured loans or secured loans.

Unsecured loans

Unsecured loans don’t require you to put forward security, such as your property, to secure the loan. Providers typically offer lower loan amounts (usually up to around £30,000) over shorter periods, ranging from a few weeks to a few years. Interest rates are also often higher and other charges may apply. Types of unsecured loans include:

• Personal bank loans
• Personal loans from alternative and online lenders
• Payday loans or short-term loans
• Business loans
• Peer-to-peer loans
• Guarantor loans

You can find more information about the differences between payday loans vs short term loans on our blog. Meanwhile, our guide on payday loan eligibility criteria has lots of helpful information on interest rates, paying off loans, and the different kinds of fees you can expect.

Secured loans

Secured loans – as the name suggests! – are secured or guaranteed using a major asset, usually your home. These loans are often used by those who require a larger loan amount (from around £10,000 to hundreds of thousands) and to repay it over a longer term, usually several years. Interest rates can be lower for an unsecured loan, but you risk losing your home if you can’t keep up with the repayments.

Types of secured loans include:

• Secured homeowner loans (second-charge mortgages)
• First charge mortgages
• Vehicle finance
• Bridging loans

To see what might work best for your situation, consider how much you need to borrow and for how long.

• A secured loan might be better if you want to borrow larger amounts over a long period, but remember that your home or asset is at risk if you default.
• An unsecured loan might be better if you need to borrow a smaller amount and can repay over several months.

As mentioned, it’s important to think carefully about taking out a loan. It’s vital that you make a well-informed decision that aligns with your financial capabilities and goals.

How can I compare different types of loans?

Once you’ve decided the type of loan you want to apply for, it’s sensible to compare the lenders on the market and the deals they’re offering.

Remember, the deal a lender offers you will depend on various factors, including your credit score, your financial situation, your employment status and your income. You’ll also need to factor in the cost of the loan, including the APR, or daily interest rate.

Here are the basic areas to compare:

1. How much can I borrow?

The amount you’ll be able to borrow depends on various factors, such as your credit history, your current financial situation, and the type of loan you’re seeking. Take a look at the minimum and maximum loan amounts the lender offers and check that this fits your requirements and your repayment abilities.

While every lender is different, you’ll generally find payday loans starting from around £1,000. If you’re looking to borrow a larger amount, lenders may offer you a longer-term loan of up to £25,000, under the correct circumstances.

If you’re thinking of taking out a personal loan, we’ve got a handy guide on all you need to know about all you need to know about personal loans. You’ll find further information on the different variations of personal loans, how to secure one, and the factors to consider before applying. We also have a handy payday loan calculator to help you break down the potential costs of borrowing.

2. How long can I borrow for?

Different lenders have different terms and conditions when it comes to lending terms, so look into each lender’s specific minimum and maximum terms. Then, think carefully about whether these terms are right for your financial situation, and whether you’ll be able to comfortably afford the repayments.

While we’re on the topic of loan repayments, here are some handy tips on how to pay off a loan faster.

3. What is the cost of borrowing?

When comparing payday loans, it’s important to look beyond the amount you’re borrowing and understand the full cost of repayment. For example, we charge a daily interest rate of 0.79%, applied only to your remaining balance. This means you’re only ever paying interest on what you still owe – not the full loan amount from day one.

The FCA has an imposed limit on interest rates of 0.8% of the value of the loan per day. Most payday lenders charge this amount, but some, including us here at Moneyboat, charge less than the upper limit, making us one of the more affordable direct lenders in terms of the interest we charge on our loans.

Because our loans run from 2 to 6 months, the total amount repayable (TAR) is the best way to see what your loan will actually cost overall. This figure includes your loan amount, any interest, and any fees – giving you a clear picture from the start. We do this to ensure we’re fully transparent from day one.

You can read more about responsible lending practices with our helpful guide.

You’ll also see the annual percentage rate (APR) listed when comparing lenders. The APR shows what a loan would cost if you borrowed for a full year, including all interest and charges –  and is a measurement that the Financial Conduct Authority (FCA) requires all lenders to advertise. It’s useful for comparison, but the best way to compare loans repaid in the short-term, the daily interest rate and TAR are more accurate indicators of cost.

4. Are there any other charges applicable?

It’s always a good idea to look at additional charges or fees when comparing loans. These could include:

• Early repayment fees
• Arrangement charges
• Late payment penalties
• Set-up fees

Our guide on loan costs has all the necessary insights on calculating the cost of a loan, including interest rates and the penalties mentioned above. It’s always important to bear these in mind when calculating if a specific loan is right for your situation.

5. What are the lending criteria?

As well as finding a low-cost loan that suits your requirements, you’ll need to ensure that you qualify for your chosen loan. Lenders may check any or all of the following before offering you a loan deal:

• Your credit score
• Your employment status
• Your salary
• Your financial commitments
• Your age
• Whether you have a UK address and bank account
• Whether you’re a homeowner

Some businesses will offer you the chance to check your credit score before you start applying for loans, which will help you avoid applying and being turned down. If this should happen, your credit score can be negatively affected. You can learn more about this in our guide to how payday loans can affect your credit score.

What other factors can I use to compare payday lenders?

As well as APR and daily interest rates, there are several other variables that you can look at when trying to find the best value lender. These include:

• Loan amounts
• Loan terms
• Late payment penalties charged
• Early repayment penalties charged
• Set-up fees
• Support offered
• FCA registration/responsible lender status
• Eligibility criteria
• Repayment terms and conditions

Questions to consider before you apply

It's important to take the time to shop around for the right type of loan for you from the right kind of provider. If you want a short-term loan but are unsure who to borrow with, ask yourself:

• Do I want to repay in a lump sum or over several instalments?
• Do I want the option to repay early without penalties?
• Do I meet the lender's minimum lending criteria?
• Is the provider I've chosen a responsible lender that adheres to FCA rules?
• How much does the lender charge each day in interest?

I know I have bad credit, will I still be able to access a loan?

Some lenders of both secured and unsecured loans will consider lending to people with different credit histories. However, you may find that interest rates and charges on these loans are very high, which can make the cost of borrowing unaffordable and can even lead to further financial problems.

For those who want to avoid the cost and financial commitment of borrowing, there are various loan alternatives that could be more appropriate, including:

• Arranged bank account overdrafts
• Zero or low-interest credit card
• Credit unions
• Borrowing from friends or family

Resources to help compare payday loans

Although comparing payday loans isn’t always a straightforward process, it’s worth putting in the time and effort to shop around for the best deal to suit you. Choosing the right loan for you is important, so it helps to be aware of the language around interest rates, fees, and specific repayment terms before applying. To give you a head start, we’ve put together this financial jargon guide.

You can also use a comparison site such as All The Lenders, where you’ll be able to get a transparent picture of what each lender is able to offer you.And if you’re looking into effective saving tips then our guide to the 50/30/20 savings rule is a must-read, too.

Where can I find free financial advice?

Looking for free independent advice? There are plenty of helpful third-party financial support organisations who can help guide you on loans, debt repayment and financial wellbeing, including:

• Citizens Advice
• StepChange
• MoneyHelper