HOW TECHNOLOGY IS DRIVING DOWN THE COST OF SHORT-TERM LOANS

New data released from ethical short-term lender Welendus highlights the role of technology in reducing the cost of emergency cash for consumers.

The startup is proving that a short-term loan doesn’t need to become a long-term problem for consumers by utilising innovative technology to efficiently match borrowers and lenders on a large scale.

The peer-to-peer platform has been developed by former NASA rocket scientist, Nadeem Siam. The unique technology is set to change the short-term loan market by offering borrowers cheaper short-term loan options.

The automated platform removes the need for administration fees and extortionate APRs by ensuring borrowers are able to make repayments and algorithmically matching them to the most suitable lender at the speed of light. This drastically reduces staffing and company overheads, and these savings mean highly competitive and lower interest rates can be offered to customers.

Comparison data between the new tech firm, traditional, and not-for-profit short-term lenders reveals the significant impact that using technology can have on the final cost for the consumer, with a Wonga loan costing 166% more than a Welendus tech financed option.

Table 1

*StreetUK only offers loans with a minimum repayment period of 12 months, resulting in an inflexible interest repayment of £135.86.

Recent media attention has also been given to not-for-profit short-term loan providers, with actor Michael Sheen spearheading a prominent campaign promoting non-for profit organisations such as Scotcash and StreetUK as alternatives to traditional payday lenders and calling for a change in the industry.

Whilst community interest groups and not-for-profits are significantly cheaper than leading traditional lenders, Welendus is able to offer even better rates to consumers than not-for-profit lenders due to its use of technology.

Table 2

For consumers looking for a truly short-term loan, administration and processing costs can account for a significant proportion of the final repayment total.  If paid back within seven days, a Welendus loan is less than a third of the cost when compared to Scotcash, a leading not-for-profit lender, highlighting the role technology can play in generating benefits for both investors and borrowers.

This data emerges after figures from the financial ombudsman show a 40% increase in complaints regarding loans, and a major review of the industry by the Financial Conduct Authority.

Nadeem Siam, CEO and co-founder of Welendus, said, “People are currently unhappy with the lack of affordable options when it comes to emergency cash, whether this be high overdraft fees or payday loans with extortionate interest rates. Welendus was founded specifically to tackle this issue, and provide an ethical, affordable option in the marketplace.

“The unique technology we use not only allows investors to lend money to those in need in local communities, it also drastically reduces our overheads, meaning that loans are cheaper for borrowers ultimately resulting in lower interest rates, and fairer, more flexible loans.”