Mark Up, Loan Rate & Interest Rate


It is not uncommon for new forms of financial service to be confused with more established ones.

At Level, we are often asked by companies (and even some customers) about the interest rate or markup that we charge on our salary advances, now commonly labelled as Earned Wage Access or EWA.

Earned Wage Access is not a form of loan or credit. EWA is providing workers with ‘access to accrued but unpaid wages’. See here for an explanation of how EWA works.

Because EWA is not a form of credit, Level does not charge an interest rate on the amounts advanced. Instead Level charges a simple and fair transaction fee. 

How are loan interest rates calculated?

In very simplistic terms: a lender will use a mathematical model to estimate the likelihood you (and other customers) will default on a loan. The lender will then assume a set percentage of the loans it makes will default.

The Lender will then set its interest rates on money loaned at a level designed to recover enough money from those that repay their loans to cover the cost of the money lost from those who do not repay (as well as cover their operating costs and make a profit). 

This basic principle applies to all lending products: personal loans, credit cards, and overdrafts. The interest rate you are paying is compensating your lender for the money they lose to people who do not repay their loans. 

The cost of defaults significantly increases the interest rates lenders need to charge to ensure they don’t lose money overall. In the case of short-term loans (e.g. payday loans), this can result in very high-interest rates indeed, sometimes over 1000% APR. The risk of default is high, but there is less time (and fewer repayments) over which interest charged on ‘performing’ loans can offset those losses. 

To cover their costs and make a profit many lenders also charge additional default fees and default interest and other mark-up’s too. 

This is how some loans and credit products can lead to a ‘debt spiral’. The amount you repay can in some cases build up and up when these additional charges and interest rates are added to your original loan amount. 

How does Level calculate transaction fees?

Level is not a Lender. Level is not assuming the risk that you default and do not repay amounts advanced. Level is only ever providing you with money which is already yours, the money you have earned. 

For this reason, Level is able to charge just a simple fair transaction fee to cover the costs to Level of making the advance (e.g. payment transmission costs and software costs), plus a small mark-up to keep us in business. 

This is also why Level’s transaction fee is the same, regardless of how much you advance (e.g. £50 or £5000). And why Level’s fees never compound, you only ever pay once and there are no hidden extra costs, mark-up or fees. 

An additional benefit of EWA provided by Level is that advances (and the transaction fee) are recovered by Level automatically on your employer’s normal payday. This means you don’t have to remember to do anything to repay your advances, this is taken care of by default. 

For these reasons we believe EWA provided by Level is the most risk reduced, and financially literate personal cashflow finance tool, for helping you manage your money between paydays and improving financial wellbeing.

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