Payday Loans APR Explained
When you first come across a payday loan company’s website you are going to find that by law, they are obliged to clearly display on their site the interest rate they are going to charge you for taking out such a loan. However, the way in which they have to present this information can be very hard to understand for most people as the interest rate is displayed as something known as an APR.
APR stands for Annual Percentage Rate, and this is the interest rate you would be charged if you had taken a loan out for one full year. This is something of a problem for many payday loan companies, as by their very nature they offer short term as opposed to loans often available from banks, who tend to lend money over years and not months.
So when you do visit a payday or short term lenders website you are often faced with a message on their website that will state something along the lines of “Representative 5853% APR”. This is going to confuse most people, as they may not understand what that means nor give them an indication of just how much they have to repay on their loan, and this can make comparing the interest charged by payday loan sites very difficult.
Payday Lenders Charge Interest per Day
If you are struggling to fully understand APR’s and the interest charged by most payday lenders, then it is probably best that you forget about APR’s and trying to get your head around them and simply take a look at how much money you are going to be charged per day for taking out such a loan.
Many payday lenders will charge one set amount of the loan borrowed per day, and this makes working out how much you are being charged for a loan and how much you are going to have to pay back so much easier.
We are aware of many payday lenders who are going to charge you just 1% of the loan amount borrowed per day as interest. This means that if you borrow let us say £100 over 35 days then you are going to have to pay back a total of £135, the original £100 you borrowed and £35 in interest.
One percent of £100 is of course £1 so times that one percent by the number of days you want to borrow the money for you can then workout how much you will have to repay, so in our example £100 divided by 100 equals £1 and £1 x 35 days is £35, so your total repayment is £135.
Try and Pay Back Your Loan Early
The basic idea behind any payday loan company is that they are going to help their customers overcome and emergency type of situation when that customer needs access to cash quickly and virtually instantly, without having to spend hours visiting an office and filling in lots of forms.
You should never look at a payday loan company as a way of accessing cash simply for leisure activities, you should only every lend money that you cannot borrow from anywhere else at a lower rate of interest and only when that money is urgently needed.
If you can try and pay back your payday loan as quickly as possible, for by doing so at most payday lending sites you will only ever have to pay the interest up until the day you pay the original loan back and will not have to pay interest on the full time period you originally took out the loan for if you pay it back earlier.
By paying a payday loan back earlier not only will you be saving yourself money by not having to pay interest on the days you have left on the original loan, but you will also be showing the payday lender that you are a good customer, and as such if you are ever in urgent need of cash in the future, then they will be more likely and willing to give you another loan at a later date, and often the amount you can borrow in the future will be increased.
One final thing you should look out for when applying for a payday loan is to make sure you can indeed pay back your loan early and only have to pay interest up until the day you repaid the loan, whilst many payday lender will work in this way, there are a few out there who do not!