It's Cheaper to Take Out a Payday Loan Than to Borrow From a Bank, According to New Research
LONDON, February 7, 2013 /PRNewswire/ --
Research undertaken by the Chartered Institute for Securities & Investment (CISI) shows that customers looking to borrow money on a short-term basis might be better off going to a payday lender rather than a high street bank.
The CISI compared the cost of borrowing £200 from a typical payday lender to an equivalent sum as an unauthorised overdraft with both Lloyds Bank and Nat West.
The cost of borrowing £200 from the payday lender was £66 compared to £84.22 with Lloyds Bank and £110 with Nat West.
The CISI is a 40,000-strong professional membership organisation for those working in the securities and investment industry and their latest findings were published in the February edition of its magazine Securities & Investment Review.
Simon Culhane, CEO of CISI, said: "Late last December the Government, as part of the Financial Markets Act, undertook to introduce a cap on the amount of interest that can be charged on a loan. However, this legislation was aimed at payday lenders.
"The scandal isn't the rates charged by payday lenders but the rates charged by banks. The complete silence on rates being charged by banks for unauthorised borrowing is mystifying."
If the Government does legislate for a cap on interest we can expect to see the payday lenders focusing on charging fees, rather than interest, which will then allow some real comparison."
PaydayUK, one of the UK's largest payday lenders, charges £29.95 per £100 borrowed - meaning an equivalent £200 loan from PaydayUK would cost £59.90.*
Unlike the majority of money lenders banks offering overdrafts and the applicable fees for unauthorised overdrafts, don't have to display their APRs.
Nick Acaster, head of marketing at PaydayUK, said: "The industry has been arguing that APRs are an inaccurate way to judge our products.
"We have always maintained that being clear on the total cost of credit is a more valid indicator and this latest research from the CISI provides an interesting independent view."
Click here to see the research
*If paid back on time. If the initial repayment date is missed fees and further interest may apply.
Short-term or payday loans should only be used for short-term financial needs and are not appropriate for longer-term borrowing or if you are in financial difficulty.