Peer-to-peer loans vs payday loans
Peer-to-peer lending group Lendico says new financial lending platforms that follow the peer-to-peer model could offer a safer and more secure alternative to payday lending.
Payday loan websites have recently received increasing attention, being criticized for providing vague information about their unsecured short-term loans, for which often little attention is paid to the financial situation of the lender. ‘borrower.
According to Lendico, the payday lending industry is worth around 400 billion Rand worldwide and could touch borrowers up to 70,000 Rand on a 1,000 Rand loan, due to the interest, fines and additional fees attached.
“Once you take out one of these loans, you will be charged a fee for the loan, which you will have to pay in one installment per payday,” the group noted.
“Although you get the loan extremely quickly, if you miss that loan repayment date, you end up paying huge additional late fees, leading to more and more debt. This refinancing debt risks borrowers having to take out more payday loans to pay off the first one.
Choosing online loans can be very confusing as it can be difficult to distinguish between the many offers.
The following table compiled by Lendico offers a comparison between payday loans and P2P loans.
Always be careful
Lendico is currently one of three online short term loan providers in South Africa – RainFin and Wonga.com offering similar services to individuals and small businesses looking for quick loans.
Notably, Wonga has been criticized in the markets in which it operates, particularly the UK, for charging annual interest rates of up to 5,853%.
In July, the South African branch of Wonga was attacked by the National Credit Regulator (NCR), which ordered the lender group to improve its compliance, after finding that the company did not verify the income of its clients. .
This despite the group’s claims to do so for each loan it issues.
In response to the NCR order, the company said that “we have reviewed the letter with outside advisers, who have confirmed our view that we are in full compliance with the applicable rules.”
First-time Wonga borrowers in South Africa can expect to pay a premium of 27% on a 48-day loan of Rand 2,500. Regular customers can borrow up to R8,000.
Lendico is fully licensed by 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 market for loans between R 1,000 and R 75,000 with a maximum repayment period of one year. The group’s median interest rate at the last reporting was 13.2%
South African consumers are teeming with credit, with household debt levels averaging around 75% of disposable income, regulators say.
The inability of consumers to repay short-term unsecured loans was a key factor in the African Bank crash in August, which prompted the implementation of a multibillion rand bailout by the South African. Reserve Bank (Sarb).
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