P2P loans vs payday loans


The cost of living is rising and more of us are likely to be looking for consumer finance solutions in the near future.

There are a number of options available to consumer borrowers, from overdraft services to credit cards. But for some borrowers, a personal loan may be the most suitable option.

Despite the departure of high-profile consumer lenders like Zopa and Lending Works, there are still a number of peer-to-peer lending platforms offering personal loans to borrowers. However, P2P loans are frequently confused with payday loans: short-term, low-value personal loans that are designed to help people make ends meet while waiting for their next paycheck.

Read more: Sourced Capital Preps £12M Loan Portfolio for P2P Investors

There are many differences between P2P loans and payday loans. The main difference is that P2P loans are financed by retail investors, while payday loans are generally financed directly by the payday lender.

Payday lenders tend to target low-income borrowers by offering smaller loans of £100 or less, while P2P consumer lenders offer larger loans with longer repayment terms. P2P lenders also tend to run more stringent credit checks than payday lenders, which means P2P loans may not be available to borrowers with bad credit histories. This means default rates are typically lower with P2P lending and the recovery process is less aggressive.

But the most significant difference is the cost of the loans. P2P loans aim to provide affordable financial solutions to borrowers so that the investors financing the loans have the best possible chance of receiving their principal and interest. Payday lenders make most of their money from the astronomically high interest rates and penalties that kick in once a loan goes into default.

Take a look at the examples below to see how much a £1,000 loan would cost via a P2P loan compared to a payday loan. We have used three representative examples for each type of lender, and all figures were correct at the time of publication.

How much does it cost to get a £1,000 loan from a P2P lender?

elven market

Elfin Market offers personal financing through Elfin Purse; an online credit card financed by P2P investors.

All Elfin Purse withdrawals are subject to a representative APR of 5.8 percent. This means that a £1,000 loan taken from Elfin Market would ultimately cost £58.87.

jump loan

Leap Lending specializes in consumer loans between £500 and £15,000, which can be repaid over two years at a representative APR of 15.48 per cent (including all fees).

A £1,000 loan repaid over two years would cost £157.76.

How much does it cost to take out a £1,000 loan with a payday lender?

Cash fund

This popular payday lender offers same-day loans of between £300 and £2,500 with a representative APR of 611.74 per cent.

A loan of £1,000 repaid over three months would cost £1,530.40 in interest alone.


Loanpig personal loans must be repaid within two to 12 months and have a maximum fixed APR of 292 percent. A £1,000 loan repaid over three months would cost £521.72 in interest payments.

QuidMarket Loans

QuidMarket offers same-day payments on short-term loans up to £1,500. The lender has capped its APR at 1,625.5 percent, but currently advertises a representative APR of 1,296.5 percent for loans repaid within three months. This means that a £1,000 loan would cost £514.58 in interest payments.

Read more: JustUs raises interest rates for investors


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