Payday lender offers rates cheaper than bank personal loans
SpotMe's rates for Centrelink and bad credit borrower loans are surprisingly low.
What happens when the "unscrupulous" payday lenders that prey on bad credit borrowers, draining bank accounts with abhorrent fees and sky-high rates, beat the banks at their own game? It looks like we're about to find out.
A payday lender has just dropped its rates below what some banks are charging for their personal loans. Australian small loans lender SpotMe is currently offering loans for a 9% establishment fee and a 3% monthly fee, claiming to be 50% cheaper than the majority of other small amount lenders in the market.
A lot has been done to curb the fees payday lenders can charge – they are currently limited to a 20% establishment fee and a 4% monthly fee on any Small Amount Credit Contract (SACC), a loan of less than $2,000 repaid within 16 days and one year. First-time SpotMe customers can borrow between $300 and $1,000 while repeat customers who have successfully repaid their first loan can apply for up to $2,000.
As with any payday loans, these are not annual rates, so borrowers opting for SpotMe's maximum six-month term will see their interest costs creep up. To get an idea of the difference, a borrower taking out a $500 loan for one month will repay $560 (an establishment fee of $45 and a one-off monthly fee of $15). If the terms extend to six months the borrower would repay $635 (the same establishment fee of $25 and total monthly fees of $90). A $500 loan from a lender that charges the full 24% would see a repayment of $620 over a one-month term.
So is it better than a bank loan?
The difficulty in comparing SpotMe's Loan with bank personal loans is that the rates are spread across different terms. For SpotMe's loan, the rate will change month on month depending on how long the terms run – periods between one and six month terms are available. Banks have annual rates for their personal loans and you currently cannot take out a bank personal loan for less than a year. (Only a few non-bank lenders, an example being peer-to-peer lender Ratesetter, offer terms of less than a year on standard personal loans.)
Let's say you need to buy a TV and let's say you have the choice between a typical bank loan and SpotMe. For the purposes of the comparison, the TV you want to buy is $1,000 (this is the maximum you can borrow as a first-time customer from SpotMe and the lowest amount able to be borrowed using a bank personal loan on finder.com.au.)
- A $1,000 loan with six-month terms
- $90 establishment fee
- $180 monthly fees
- Monthly repayment amount: $50.80
- Total amount to be repaid: $1,180
- A $1,000 loan with 12-month terms
- $120 application fee
- No monthly fees
- 10.99% p.a. interest rate
- Monthly repayment amount: $99.51
- Total amount to be repaid after 12 months: $1,195
- Length of month. All months are assumed to be of equal length. Both loans may accrue interest and fees on a daily basis leading to a varying number of days' interest depending on the number of days in any one month.
Comparing SpotMe's Loan
Below we'll take a look at personal loans, overdrafts and credit card cash advances against SpotMe's payday loan.
|SpotMe Loan||Personal Overdraft||Personal Loan||Credit Card Cash Advance|
|Rates||No interest, represented as fees||Typically between 15-20% p.a.||Typically between 6.9% p.a. to 16.99% p.a.||From 9.99% p.a. to 21.99% p.a.|
|Fees||9% establishment fee, 4% monthly fee||Typically between $0 and $30 per month||Typically between $0 and $350+ establishment fee||Between 1.5% and 4%|
|Bad credit?||Yes||Depends on history with your bank||Only with bad credit lenders||No|
|Turnaround time||60 minutes after approval||A few minutes for existing customers||Some banks offer same-day for customers, typical is a 7 days to a few weeks||Instantly if you already have a card|
As credit products are developed for those in situations regarded as 'not approvable' by the banks, it may be up to the disrupters in the market, like SpotMe, to break the mould.