Payday loan comparison: how to compare short-term loans

Payday loan comparison: what to compare before you borrow

Comparing payday loans properly means comparing three things. What does the loan cost in total? How quickly does the money arrive? What happens if you can’t pay? Most comparisons cover the first, guess at the second and skip the third.

Payday UK doesn’t lend. One application goes in front of a panel of FCA-authorised lenders, and you see what comes back. The lender pays us a commission if you go ahead.

Can you compare payday loans like for like?

Not in the way you'd compare broadband deals. Lenders price each application separately rather than publish a single rate. The cheapest lender for you may be the dearest for someone else. Any comparison that names a single winner is describing an average that nobody is actually offered.

What you can compare is how lenders behave. That means how quickly they pay out, how they decide, and their charges outside the interest rate. It also means what they do when a payment fails. That's what the rest of this guide covers.

What to compare on any offer:

Is the lowest APR actually the cheapest loan?

Not always, and over a short term, APR is the wrong tool. APR annualises the cost of credit, which works if you'll hold a debt for a year. Compress a 30-day loan into an annual figure, and the result is accurate but useless for ranking offers. Rank on the total amount repayable instead, then use APR as a sense check.

Line these up for the exact amount and term you want:

• The total you will repay in pounds, not the rate

• How many instalments there are, their size, and when each falls due

• The cost per £100 borrowed per month, which stays comparable across terms

• Whether interest is charged daily, so repaying early genuinely costs less

• Any charge that sits outside the interest rate

• What one missed payment adds to the total

One caveat on advertised rates. A representative APR is the rate at least 51% of agreements from that advert should get, or better. The rest can be offered worse. Rates on this panel start at 9.3%, but only the quote addressed to you means anything. Our guide to APR works through the arithmetic.

Does the price cap mean this cannot get out of hand?

Partly. High-cost short-term loans are price-capped by the FCA, but not every loan on this panel is covered. APR explained sets out how the cap works.

A capped price is not a safe price. It's a ceiling, and it's high. Compare the total repayable on the agreement in front of you, not the limit the rules allow.

What costs sit outside the interest rate?

On a high-cost short term loan, most charges fall under the price cap. The ones that don't are the ones that tend to catch people out.

You can repay early at any time and pay less interest. No early repayment charge applies to loans arranged through us. Ask the lender for a settlement figure first. It can include up to 28 days' extra interest.

How quickly will the money actually arrive?

Instant rarely means instant. Many decisions are automated and quick. But a check that needs a person can turn minutes into hours. The usual causes are additional identity or income checks, manual review, your bank's processing time, and weekends or bank holidays.

None of those is a lender stalling. The part you control is the application itself. Check your sort code and account number carefully. Make sure your address history matches the electoral roll. Accepting the read-only bank connection also avoids delays.

If the money has to arrive today, our guide on how to get a same day loan explains what's realistic.

What do published acceptance rates tell you?

Treat every published acceptance rate carefully. A rate describes the people who applied to that lender. It says nothing about your own application.

Approval is never guaranteed. Every lender checks you can afford the repayments, and an accurate application avoids delays. Lenders also look at how long you've been at your address and what your bank statements show, including gambling transactions.

Every full credit search shows on your credit file, and other lenders can see it. The lenders on our panel run a soft search, which won’t affect your credit score.

What should I compare about the day I cannot pay?

Most comparisons stop at the offer, but the real difference shows up the first time a payment fails. A lender that will freeze interest and agree to a reduced payment turns a bad month into an inconvenience. One that moves straight to default turns it into a mark on your credit file for six years.

FCA rules require lenders to treat you fairly if you’re in difficulty. That flexibility is what the rules expect, not a favour. On high-cost short-term credit, the rules also set floors:

• A lender using a continuous payment authority can try the same payment or instalment no more than twice. After two refusals, it must stop and talk to you before trying again

• It can’t use that authority to take a part payment unless you’ve agreed a repayment plan

• The same loan can’t be refinanced or rolled over more than twice

• You can cancel that authority with the lender or your bank. Citizens Advice explains how to stop a future card payment

Before you sign, ask each lender what a missed payment costs. Ask whether interest keeps running on a payment plan. Ask whether the plan is reported to credit reference agencies. Lenders differ most in how easily you can reach a person. They also differ in whether they’ll put an arrangement in writing.

How do I check if a lender is authorised?

Authorisation is the first thing to check, because it's the only yes-or-no on the list. A firm lending consumer credit without permission is committing a criminal offence. An agreement made that way can’t be enforced against you without the FCA’s consent.

Search the FCA Register for the firm's exact name and review its permissions and any enforcement notices. Financial Ombudsman decisions are published too, if you want to see how a lender handles complaints.

If a loan should never have been given to you, putting it right is free. Complain to the lender first. It has 8 weeks to send a final response. You then have 6 months to take it to the Financial Ombudsman. A claims company will take a percentage of the money you can recover yourself for nothing.

How do I know the comparison itself is honest?

Start with the firm doing the comparing, not the loans.

• Search the FCA Register for the exact company name and firm reference number. Check the trading name you’re using is listed against it. An appointed representative appears under its principal firm

• Check whether you're dealing with a broker or a lender. Only a lender decides

• Check what the site itself charges you. A broker has to tell you about any fee before you’re committed. Nobody legitimate charges you to promise approval

• Ask who pays for the site. Most comparison sites are paid by lenders, not by you.

• A panel is not the whole market, and no broker can see every product

• Treat 'rates from' figures as advertising until a lender has seen your application

Applying that to us: we’re a credit broker, not a lender. We don’t charge you a fee. We don’t fund or decide anything, and we’re paid commission by the lender when a loan completes. That commission is a reason to read the points above closely, not a reason to skip them.

What's cheaper than a payday loan?

Usually, something that needs a conversation rather than a form. Our guide to alternatives to payday loans covers the main options.

What should I ask before I sign?

One question does more work than the rest: what's the total I'll repay? It combines the rate you were offered with the term you chose. It’s also the one number that lets you compare two offers side by side.

Then ask what happens if you can’t pay. The answer is in the agreement in front of you. If a lender won’t explain it plainly, look elsewhere.

Walk away from anyone who won’t give you a clear total cost, or who guarantees approval without checks. Our guide to borrowing money safely covers the other warning signs.

What if the honest answer is not to borrow at all?

Sometimes the comparison itself is the answer. If every offer you line up is unaffordable, the problem isn't which lender. The signals:

• You would be borrowing to repay other borrowing

• This is the third short-term loan in six months, or you run short before payday most months

• You're behind on rent, council tax, energy or a mortgage. Those are priority debts, and their consequences are worse than a loan's

• The cost you're covering recurs, so next month arrives with the repayment on top of it

• Somebody else is pressing you to apply, or the money is for them

Four things that cost nothing and appear in no comparison:

• Free, independent debt advice from National Debtline, which isn't paid for by lenders

• Breathing Space, arranged through a debt adviser, which pauses most interest, fees and enforcement for 60 days

• The Turn2us grant search, for money you never have to repay

• The creditor you're behind with. Lenders have to consider forbearance, and asking early widens your options

Getting advice doesn't affect your credit score. Taking a loan to close a gap that reopens next month usually does.

Common questions

Which payday lender is cheapest?

There isn't one. Lenders price each application separately, so the cheapest for you depends on your circumstances. Compare the total repayable on the offers you actually receive. If you can join one in time, a credit union will usually cost less than any payday lender.

Who has the highest approval rate?

Published acceptance rates say very little about your own chances. A published rate describes other people’s applications. Approval is never guaranteed, and every lender checks you can afford the repayments

What's the fastest payday loan?

Speed depends more on your application than on the lender. Many decisions are automated, but extra checks, bank processing and weekends can add hours. Getting your details right the first time is the surest way to avoid delays.

Should I use a broker or a direct lender?

A broker like Payday UK puts one application in front of several lenders, who each run a soft search. A direct lender can only offer its own rate. Whichever you use, check it's on the FCA Register and that you won't be charged a fee.

Can I get multiple payday loans?

It’s possible, but each new loan makes the next repayment harder. Lenders can see existing payday loans on your credit file and bank statements. If you need a second loan to cover the first, that's the point of getting free debt advice instead.

Want to see what lenders on our panel might offer? They run a soft search, which won’t affect your credit score.

Before you apply, check the lender on the FCA Register.