Costs & APR
Toothfairy strives to compete with banks in the small, quick loans market and can offer real costs that are lower than most banks.
Interest
The interest rate for microcredit with Toothfairy is a straight 9% per week.
In other words we charge £9 per week per £100 borrowed.
Now you borrow for a minimum of 2 weeks so thats £18 per £100 for the loan.
Cost
Using a clear and easy to understand fee of £9 per £100 per week lets you know exactly what this is costing no financial babble or complex sums!
APR
A frequently misunderstood aspect of the microcredit industry is the fee charged for the service. Long term / traditional loans and credit cards use Annual Percentage Interest Rates (APR) as a way of comparing loans, this is the total of all the charges (as if multiplied) over the whole year and then the average of that over the year.
But looking at the yearly cost here is misleading because you only want this loan for 2 weeks!
You don’t want a loan for year, and you don’t want to be committed to paying out interest for a whole year, long after you have stopped needing the loan. You just want a short term helping loan. You just want to pay interest for only the 2 weeks you need it!
- if you went to a hotel and asked "how much for a room?" and they said "£32,485 for a year" you would not be impressed, instead they say "£89 per day".
The same is true here - 9% per week.
As such, we believe, the Annual Percentage interest Rate is potentially misleading. APR makes sense for what it was designed for, 20 year mortgages, but is inappropriate as a measure of microloan fees because microloans are NOT ANNUAL and are designed to provide short term money to help you avoid the unfair overdraft penalties and fines the banks want to charge you (conveniently not included in APR). Did you know the Halifax charge you £5 per day for unauthorised borrowing, but conveniently that is not included in APR. Finally traditional lenders may tie you in for a whole years interest rather than just the 2 weeks you need. Now that's a real cost!
The maths part: Microloans offer credit borrowed for less than one year. Using APR multiplies the loan cost (but NOT the loan amount) which gives a silly percentage just like the hotel room example. For example using this method a typical loan from Toothfairy would be calculated at 2689% typical APR but in real terms it is £18 or 9% per week.
As you can tell we have a bee in our bonnet about this measure. Toothfairy strive to always be as clear as possible in the pricing of our loan and credit products, therefore, we believe that the best way to specify the price is in the pounds and pennies. Regardless of what the results of the formulas for APR for our products are when it is counted annually as a customer, you can be assured that the cost of pounds and pennies is exactly what we set out - not a penny more!
You will be charged £9 per week per £100 borrowed. You can only borrow in minimum periods of 2 weeks after which the entire sum including borrowing charges becomes due. If you fail to pay after 2 weeks a new loan may be re-issued for a further 2 weeks at the same cost, £9 per £100 per week. So have you got how much it costs ;-) £9 per £100 per week.
Example:
So, if you borrow £100 you should pay £118 in 2 weeks time. If this is not paid after 2 weeks your loan will be re-issued at a slightly cheaper rate and £136 will be due in 4 weeks.
The costs of a micro loan from Toothfairy are as follows:
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|---|---|---|---|---|---|---|---|---|---|---|---|
| £100 | £18 | £118 | |||||||||
| £200 | £36 | £236 | |||||||||
| £300 | £54 | £354 |
