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Despite a vast choice of online lenders offering a variety of short-term loans many customers make the mistake of not shopping around. The days of having to go cap in hand to your bank, credit union or building society to borrow money are long gone. Now, thanks to the advancement of the internet and relaxed lending laws, consumers can obtain short-term loans in a matter of minutes from many different sources. However, despite all the choices available, consumers still fail to shop around, which can ultimately lead to not getting the best deal or even any deal at all.
Humans are by creatures of habit. Generally, most of us like to stay within our comfort zones and tend base decisions on what we know already rather than explore new areas. When it comes to taking short-term loans, this is no different. Far too often borrowers seriously consider only a single lender or broker that they have had previous experience of, before deciding where to apply. This myopic view means these people are potentially missing out on better deals.
It may also be the case that someone has an existing loan with a lender and they were generally pleased with the service they had received from the lender. In the CMA survey into Payday loans, 61% of existing loan holders said they did not consider an alternative lender because they were happy with the service provided by the existing lender. What can also play a factor in existing consumers not shopping around is the ‘better the devil you know approach.’. People get used to one lender and prefer to stay in that comfort zone rather than find a new lender.
There is a concern too, that if they applied with another lender they may get turned down, so they stick with the lender they know and have been accepted by in the past. It may also be the case that their circumstances have changed and they the existing lender will provide further borrowing without the need for further checks which could put a loan application with a different lender in jeopardy.
A big mistake made by many people looking for short-term loans is that they get a loan quote from one company, complete an application and take that loan there and then. A huge number of people accept the first loan offer they receive and fail to shop around for potentially better deals. These mistakes can be for many reasons – laziness, complacency or fear of damaging their credit rating by applying to others are all contributing factors for people failing to shop around and more often than not, they are the ones that lose out because of it.
With regards to fear of damaging an existing credit rating by applying to multiple lenders, more than 50% of loan customers were overdrawn at the time of application and approximately 30% were turned down for other types of credit. This fear of rejection or damaging an existing credit rating contributes to people failing to shop around.
The speed of the loan offered also plays a big part in why people fail to shop around. The urgency for borrowing can often supersede the need to shop around. 74% of loan applicants in the CMA survey cited speed of loan as being ‘an extremely important’ factor in choosing to apply with just one lender. People take on short lending for emergencies or clearing of immediate bills, which means that the perceived urgency may cloud consumers’ judgement and prevent them from shopping around. Both new (26%) and repeat customers (35%) cited speed as the single most important factor for failing to shop around.
The CMA survey found that speed of application was just as important as speed of delivering the money. Consumers want a quick decision and a quick application process. Many lenders who provide quick approvals mean that the consumers do not bother to look around. The urgent need for cash combined with an almost instantaneous application approval often results in people not shopping around.
The payday loan and short-term loan industry is big business. Millions are spent each year in advertising and marketing short term loans. A successful marketing campaign will get the desired effect and this is often at the expense of consumers failing to shop around. One company may be perceived as being better (more flexible, quicker, cheaper etc.) than others because of a successful marketing campaign. Potential borrowers may try this brand first and end up being the only application they make.
The CMA survey highlighted the fact that many customers need for quick funding and fear of rejection were the most important factors in failing to shop around, even more than rates and fees. This is often a key marketing approach used by short term lenders and contributes to the consumers’ failure to look at multiple lenders.
For some people, a lack of understanding and information prevents them from shopping around. Reading the small prints, understanding the APR’s and fees can be daunting. On the search for easy loans, they may go to the lenders that have the simplest processes but may not offer the best short-term loans.
A little bit of knowledge can go a long way when it comes to borrowing money. By researching and knowing the basic terminology, any potential borrower will have an easier task of shopping around and comparing deals. Borrowers who are confident about their knowledge of available interest rates and lending conditions are almost twice as likely to shop around and get better deals than consumers who admitted being unfamiliar with available interest rates.
Another mistake some people make in looking for lending but failing to shop around is, relying on the recommendation of someone they know and trust. It may be a friend, family-member or co-worker who makes that recommendation, but you can never be sure that they have done the necessary research beforehand. Also, their circumstances will most likely be different to yours, which means what is right for them may not be right for you.
On the face of it, there really are no valid reasons for failing to shop around for short-term loans. Too many people cite a number of different excuses, as listed above, but often the fear of rejection and the perceived urgency for funding, cloud peoples’ judgement and prevent them from shopping around. Nowadays, the internet and the growth of companies willing to offer lending to people of all circumstances, makes obtaining money a relatively easy and fast task. The choice available gives you the consumer, the power to get the deal that is right for you. Use that power and shop around.
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