Peer-to-peer vs Payday loans

Peer-to-peer lending group, Lendico, says that new financial lending platforms that follow the peer-to-peer model could provide a safer, more secure alternative to payday loans.

Payday Loans sites have recently attracted increasing scrutiny, being criticised for providing vague information about their short-term unsecured loans, for which there is often little attention paid to the borrower’s financial situation.

According to Lendico, the payday loan industry is worth approximately R400 billion, globally, and could hit borrowers for as much as R70,000 off a R1,000 loan, due to interest, fines and additional fees attached.

“Once you’ve signed up for one of these loans, you will be charged a fee for the loan, which you have to pay in one installment by payday,” the group noted.

“Although you receive the loan extremely quickly, if you miss this loan repayment date, you end up paying having to pay huge additional late fees, which spirals into more and more debt. This rollover debt risks borrowers having to take out more pay day loans to pay off the initial one.”

The choice for online loans can be very confusing as it can be difficult to distinguish between the numerous offers.

The following table compiled by Lendico offers a comparison between payday and P2P loans.

P2P vs Payday loans
P2P vs Payday loans

Always be wary

Lendico is currently one of three online short-term loan providers in South Africa – with RainFin and Wonga.com fulfilling similar services for people and small businesses looking for quick loans.

Notably, Wonga has come under fire in the markets in which it operates, particularly in the UK, for charging annual interests rates as high as 5,853%.

In July, the South African arm of Wonga was taken to task by the National Credit Regulator (NCR), which ordered the lending group to improve its compliance, after finding the company did not verify the income of its customers.

This is despite the group’s claims of doing so for every loan it issues.

In response to the NCR’s order, the company said that “We reviewed the letter with external advisors, who confirmed our view that we are fully compliant with the relevant rules.”

First-time Wonga borrowers in South Africa can expect to pay a 27% premium on a 48-day loan of R2,500. Repeat customers can borrow up to R8,000.

Lendico is fully licensed by the NCR and allows consumer loans and investment credits between R3,000 and R200,000, with starting interest rates at 7.92%.

RainFin borrowers can apply in the marketplace for loans of between R1,000 and R75,000 with a maximum repayment period of one year. The group’s median interest rate at last reporting was 13.2%

South African consumers are steeped in credit, with household debt levels averaging around 75% of disposable income, according to regulators.

The inability of consumers to pay back short-term unsecured loans was a key factor in African Bank’s crash in August, which resulted in a multi-billion rand bailout plan being implemented by the South African Reserve Bank (Sarb).

More on lending

Wonga.com tackled by SA credit regulator

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Lendico hits R3 billion in loan demands

 

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Peer-to-peer vs Payday loans