Sunny is a new payday lender which promises to do things differently, including lowering your interest rate if you watch some videos on its website.
The lender says it wants to help “raise the level of financial literacy” and help its borrowers get into a position where more mainstream borrowing is an option again.
Sunny prefers the term ‘short-term lender’ and says that its rates begin at the low end of typical payday loan rates, falling to half that level, depending on the profile of the borrower. It says that it charges anything from 15% to 29% per month for every £100 borrowed. That’s the equivalent of as much as 2,073.5% APR (the annual combination of interest rates and fees).
So how do you get down to the low rate of 15% a month, or 453% APR?
Sunny Points
Sunny uses a scoring system to determine which interest rate you pay. Once you are approved for a loan, you are given a score of 100 Sunny Points. The table below demonstrates how your interest rate changes as your Sunny Points balance increases.
|
Monthly interest rate |
APR equivalent |
Sunny Points required |
|
29% |
2,073.5% |
0 |
|
27% |
1,660% |
180 |
|
24% |
1,221% |
260 |
|
20% |
792% |
340 |
|
15% |
453% |
420 |
So grab an extra 80 Sunny Points from when you begin and you’ll cut that monthly rate down by 2%.
You can earn points by either making your repayments on time (from five to 20 points, depending on the frequency of your payments) or by watching a financial literacy video online.
If you are late with your repayments, you will lose anything from 10 to 40 Sunny Points, again depending on how frequently you make payments.
Sunny Flexipay
Another slightly different option that Sunny offers is Flexipay, which lets the borrower decide how to repay the loan. Say for example I want to borrow £200. If I choose to pay it off in a single payment after a month, I’ll pay £30.93 in interest.
However, I could choose to pay it off in four monthly repayments of £81.08, meaning I’d spend £124.35 in interest.
Of course, Sunny is only too happy for me to pay the loan off like this, even rewarding me with extra Sunny Points for paying monthly – I get 20 Sunny Points for each monthly payment I make online, as opposed to five points for each weekly on-time payment I make.
Fees
Sunny makes a point of emphasising that it doesn’t charge any fees at any time. It makes all of its money from the interest charged.
That’s not the case with many payday lenders. Wonga charges a £5.50 transmission fee, for example.
Credit checks
Sunny says that all borrowers will be subject to a “robust assessment” of their circumstances, which includes a bespoke credit score and affordability tests.
Responsible lending is a big problem for payday lenders, which is one of the reasons the High Cost Credit Bill is so important. It will force lenders to be far more thorough before handing over the cash, ensuring that borrowers aren’t handed loans they can’t actually afford.
Let’s hope Sunny lives up to its promises in this department.
Doing things (a bit) differently
Let’s get this out of the way now – I’m not a fan of payday loans, and in no way would I ever encourage anyone to get one. There are plenty of far better alternatives, as we explain in The best alternatives to payday loans.
However, as much as I dislike them, they serve a purpose. There is a demand for these loans that isn’t going to disappear overnight even if the High Cost Credit Bill becomes law. Read The beginning of the end for payday loans? for more on why I believe this.
As a result, I’m keen to see lenders that operate a little more responsibly and don’t charge monster rates of interest. So Sunny strikes me as quite refreshing.
The proof will be in the pudding though. Sunny talks a good game about helping the financial literacy of the nation, but while the press release mentions financial literacy tests that will let you lower your score, there’s no mention of them on the site. Similarly, the videos that allow you to bump up your Sunny Points total have not yet materialised either. I wait with baited breath to see just how useful they end up being.
But the ability to lower your interest rate to ‘just’ 453% is a useful one, as is the ability to adjust the way you pay the loan off. I’m not going to be rushing off to apply for one just yet, but if this is the shape of things to come, the payday loan industry may just be starting to clean its act up.
Time will tell.