When searching for a personal loan, consumers have the option to use comparison websites. These are designed to help you find the best deals to suit your individual circumstances.
When it comes to payday loans however, there isn’t currently a price comparison website available. The question is would it really help consumers if there was one?
Lack of competition increases average loan amount
As reported by the BBC, the cost of the average consumers payday loan could be up to £5-£10 more than it should be. This follows an investigation carried out by the Competition and Markets Authority.
Overall it found that a lack of competition could be contributing towards an increase of £30-£60 on consumer bills each year. The trouble is, when it comes to payday loans, it’s often the people who can least afford it that end up paying more.
This has raised the question about whether a price comparison website would be beneficial. It would force lenders to make their prices a lot clearer. This in itself would be a positive move.
There are often a lot of hidden fees that consumers don’t realise until they’ve agreed to the loan. Hidden within the small print, these fees and charges are easy to miss. Not all payday lenders work this way however. Wonga is one of the leading payday lenders who make their prices crystal clear.
The chairman of the Competition and Markets Authority, Simon Polito, has welcomed the proposal to have a comparison website introduced. He states:
“If you have to take out a payday loan because of money issues, you shouldn’t have to pay more than you have to. Many times borrowers who are paying more are the ones who can’t afford to.”
Payday loan popularity has risen dramatically
According to Finextra, payday loans have risen dramatically in popularity in the past few years. As of 2012, around 1.8 million people in the UK took out a payday loan.
Around 10.2 million loans were taken out, accumulating £2.8 billion. From these figures you can clearly see how profitable the business currently is. It’s a 50% increase from figures released in 2011.
The popularity of payday loans has led to a rise in the amount of lenders. New payday lenders are constantly being introduced onto the market, all fighting to gain new customers. It’s estimated there are around 90 different lenders currently competing against each other.
The trouble is, with no real platform to compare prices, consumers are often missing out on the best deals. Nobody wants to sift through 90 companies to find the best rates. That’s where a price comparison website could come in useful.
The advantages of a price comparison site
So, what exactly could a price comparison website do for consumers? The two main benefits include:
- Showing clear estimated prices to help determine the cheapest offers
- Find loans based on individual circumstances
Being able to compare the different lenders based upon their rates is a definite advantage. Comparison sites compare all of the top lenders in the market in a matter of minutes. They basically do all of the hard work so you don’t have to. All consumers would need to do is enter a few personal details and they’ll be presented with lenders that match their requirements.
The fact that the loans are based on your own individual circumstances is also an advantage. When you search for companies yourself, you have to specifically read through their requirements before you apply. No payday lender accepts every single application they receive. They have set criteria you need to meet before they’ll lend you the money.
Potential disadvantages of a price comparison website
While there will certainly be a lot of pros if a price comparison site is introduced, like anything, there will also be potential disadvantages.
The main one is the fact you can’t guarantee that you’re going to be dealing with a reliable lender. They may show you the cheapest rates, but the companies offering these rates might be fairly new on the market. Therefore it could sometimes be worth paying a little more to deal with a well-established company.
Overall, payday loans are extremely popular these days. It’s estimated that the average consumer takes out six payday loans each year. A price comparison website could help to guide consumers to choose cheaper lenders; ensuring they don’t pay more than they need to.
Zoe Jones is a personal finance blogger. She uses her experiences to blog about best practices when it comes to borrowing.