How to compare payday loans

Are payday loans right for me?

Before comparing different payday loans and payday lenders, it's important to know whether or not taking one out is the right decision at all. Payday loans can be tough for some people to repay, as they're lent for such a short period of time. It may be worth looking at alternatives to payday loans first.

Lending Stream - an alternative to payday loans

At Lending Stream, we believe we offer a better alternative to payday loans. With our six month loans, you don't repay the entire amount plus interest in one go. Instead, you pay over six instalments. Some borrowers might find this easier to budget around, and it allows you all the benefits of a payday loan without the need to repay the whole amount in a short space of time.

Representative 1325% APR

Warning: Late repayment can cause you serious money problems.
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Understanding how payday loans work

Payday loans are short-term loans that you repay when you get paid by your employer. You have to be employed to get them, so the lender is more confident you can repay. When you apply, you'll usually be asked to provide your personal and employment details, along with some questions about affordability. While they may verify your employment, it's usually a pretty discreet process.

When you apply, you'll be asked for your debit card details, so that repayment can be arranged automatically. The amount you repay varies depending on the lender and how long you take the loan out for - it can be as little as a day or two or up to three months.

APR is confusing, but important

Each lender is required by law to display their ‘representative APR'. APR is an Annual Percentage Rate, which is designed to help you compare payday loans and other types of credit. The idea is that each APR shows what that loan would cost if you took it out for a year on the same terms.

The type of APR lenders have to show is a ‘representative APR'. This means that it's the APR on loans that at least 51% of successful applicants would be offered (as some lenders have a range of interest rates, depending on your ability to repay).

These things can make the APR (or representative APR) on short-term loans confusing. Because they're for such a short period of time, the percentage rate is multiplied many times to reach an annual figure. This means the APR for most payday loans and other short-term loans reach hundreds or thousands of percent.

It may be easier to figure out what you would repay on a daily basis, and comparing potential loans that way. You could also just look at the amount you repay and how realistic the repayment schedule is.

What to bear in mind when comparing payday loans

When you're comparing payday loans and short-term loans, it's important to look at the overall amount you're repaying, as well as the length of time the loan is for. Consider the repayment schedule or payment options available for each lender. Are the regular repayments realistic for your budget?

Bear in mind that the longer a loan is for, the lower the representative APR will be if you're repaying the same amount - so make sure you're comparing like for like. If you don't, you may end up with a loan that actually costs more overall, especially once you take into account interest and fees for things like extra repayments. Look for representative examples, which lenders have to display.

However, it's also worth remembering that some payday loans and short-term loans are for a longer period of time, with multiple repayments (each of which are for smaller amounts). It may be that you find it easier to repay a loan that is split into instalments.

Payday loan comparison sites

As with any financial service, you may find payday loan comparison sites useful. These show a list of lenders and information about each one. Usually, this will include the number of repayments, a representative APR and example, and details of any offers.

Some comparison sites won't show payday loans, as they are sometimes perceived to be poor value. Others may display them, but keep the page off the main navigation, so people only find it by searching Google.

It's worth remembering that some comparison sites work with lenders as lead generators. And there have been cases where the lender that pays the lead generator the most is shown higher on the list. This means that they're not always ordered by which is the best deal. Make sure you go through the list of lenders and compare each one.

Payday loan brokers (and how they can look like comparison sites)

There are a number of payday loan brokers, some of whom offer to compare payday loans. Brokers work with lenders and are paid according to the number of customers they send them. When you apply, you give your information to the broker and they ‘match' you to a lender, based on your affordability and which lenders are interested in you.

While the best way for this to happen would be for you to be matched to the best deal, some brokers will match you to the lender that offers them the most money. Your details will be passed on to the lender as well, but you'll often still need to fill in some further details.

While they mostly don't exist anymore, be careful of any brokers that charge you in order to apply. This used to be a popular scam - you'd pay a fee, and in return they would guarantee to find you a loan offer. The problem was usually for people who were struggling to be accepted. They'd be offered a loan at particularly high cost, but since they'd been offered it, they couldn't then get a refund from the broker.

Compare payday loans with alternatives

Payday loans are just one type of short-term loan. There are longer-term loans, which can offer a longer period to repay and smaller monthly repayments (like… well, like us. That's what we do. You can find out more about how our loans work here).

There are also ‘lines of credit', which are a new offer by some lenders. These work by giving you access to an amount of credit, that you can use and repay as you wish. It works a little like an overdraft, except it isn't tied directly to your bank account. While Lending Stream doesn't offer this option, our sister site ‘Drafty' does! More about Drafty.

Compare Lending Stream (including graphic)

Related Loans

We don't offer loans under 60 days. Early prepayment options that are available are not associated with any fees or cost. Maximum APR of 1698.1%. Given a Representative APR is 1325%, if you borrow £200 over 6 months at 292.0% p.a. (fixed) your first repayment will be £33.60 followed by £96.00, £75.84, £66.88, £62.40 and £48.96 the following months. You will repay £383.68 in total, there are no additional fees.