Payday loans no guarantor

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The Annual Percentage Rate (APR) was designed to give customers an idea of the true cost of borrowing on a particular product and in many ways it does a really good job of indicating how affordable and/or competitive a particular finance product may be. Unfortunately, whilst this works well for long medium or term loan products such as a secured loan or guarantor loan, it doesn’t work anywhere near as well for a short term loan.

Why?

The problem is that payday loans are generally available to a borrower for a maximum of 30 days which means that any APR loan calculation is going to look outrageous compared to a more traditional borrowing period of 4 or 5 years. Let me give you an example:

• A £1000 guarantor loan borrowed over 3 years will have an average APR of 82%.
• A £1000 guarantor loan borrowed over 1 year will have an average APR of 184%.

So if we drilled down further and used a payday loan as an example instead (because the loan amounts are generally £500 or less) then you can fully understand why a loan of £300 over 30 days could easily have an APR of 1000%+ and therein lies the problem…Whilst APR can be a great way of determining the true cost of a long term financial product, it does a less than brilliant job of showing the true cost of a short term borrow.

In our opinion, a loan should be based on affordability and the borrower’s ability to repay so if someone did want to borrow £250 until payday then the reality is this; can this person afford to repay the loan at the end of the month when they get paid? If they can then this loan is a viable option for someone in need of cash quickly and you have to think; what is the alternative? What if someone is about to get evicted from their property because they are behind with the rent? Surely in a case like this then a loan until payday would be not only the most viable option, it would also be the most sensible option and who could argue with that?

Borrowing more money to pay for other things is not always the best idea and consideration must always be given to the potential pitfalls of this extra borrowing but in a few cases, their only option is a payday loan.