Seem complicated? It just needs a little explaining.
What is interest?
Interest is the cost of borrowing.
Think of something you buy from a shop - well, you have to pay for it. Similarly, there’s a cost for borrowing a loan. This cost is calculated as interest - a percentage of your outstanding balance each day.
How do we calculate interest?
We calculate our interest daily. This means you only pay interest for the time you have the loan.
If you settle your loan after 30 days, you only pay interest on those 30 days. So the sooner you settle, the more money you can save. This is unlike some lenders who frontload their interest, meaning all the interest is added at the start of the loan term.
Just to add, we don’t have any fees or charges for settling early or making extra payments. You can settle your loan at any time that suits you.
How much is the daily interest?
The daily interest is calculated against the balance of your loan. That’s because interest is calculated as a ‘percentage’ of the balance.
What does that actually mean? Well, when the balance of your loan is higher in the early stages of the loan term, you’ll see more interest being accrued against that higher balance. When you’ve made more payments and the balance is lower, there’ll be less interest.
By making extra payments on top of your monthly repayments, you can reduce the balance faster, saving you money. So if you can’t settle in full, it can still be a good idea to make extra payments when you can.
Why is the interest changing each month?
So the interest is calculated daily against the balance. That interest then gets added to your balance once a month, on your payment date.
Sometimes you may see that more interested has been added to your balance than the month before. There’s a few reasons why that could be:
Days in the month - There are 28 days in February, so you’re only paying 28 days of interest. But in March, there’s 31. This means there’s 3 more days’ interest being applied to your loan in March than the month before.
Date changes - If you’ve changed the date your payments become due, there could similarly be more days’ interest being applied. For example, if you’ve moved your payment date away from the 3rd to the 23rd, there’ll be 20 extra days of interest added on when your payment becomes due.
Late payments - If a number of your payments have been late then this can mean the balance of your loan hasn’t been reducing as much as expected. This could lead to more interest accruing against that higher balance in those months.
Whatever the reason, there’s no need to panic. We promise you’ll never pay back any more than you originally agreed to.
That’s because our interest is ‘capped’. If anything does cause the interest to accrue faster, such as late payments or date changes, then the interest will stop once it hits the amount you agreed to when the loan was paid out. You won’t have to pay back any more in the long run.
So that’s interest. ‘Interesting’ stuff (sorry).
We have answers.
If you’re applying directly to us, the APR variable is 49.9%.
If you’re applying through a broker that charges a fee, this could increase the APR to reflect the total cost of credit. This doesn’t actually affect the interest rate you pay on your loan, it just reflects the total cost.
‘Variable interest rate’ means the amount of interest we charge can be changed at any time, either up or down.
Though we do reserve the right to do this, it’s not happened once in the 11 years we’ve been lending.
It’s all relative. Our loans are more expensive than bank loans, but we’re able to help millions of customers that the banks won’t lend to. That’s because we don’t judge you on your credit score.
This type of lending comes with a higher level of ‘risk’, meaning we need to charge a higher rate of interest than banks. Basically, there could be a stronger possibility we won’t get our money back, so the interest rate increases to reflect this.
At the same time, our APR can actually be up to 25 times cheaper than a payday loan. It all just comes down to what you’re comparing us to.
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