UNDERSTANDING THE COSTS OF A PAYDAY LOAN
Understanding The Costs Of A Payday Loan Online
Payday loans are measured in APR and this stands for Annual Percentage Rate. The APR usually looks like it runs in the thousands of percent but it important to know that APR is based on an annual measure so it takes the monthly rate and multiplies it to give an indication of what the APR would be if the loan were taken out for an entire year. APR is used as the measure of choice for the payday loan industry because APR is used for all financial and loan products around including credit cards and saving accounts.
You will notice that the each lender clearly states the Representative APR on their website and this is part of the regulation practice enforced by the Financial Conduct Authority. The Representative APR refers to the percentage that would be offered to 51% of all applicants. Customers must be aware that the APR is therefore likely to change based on the amount and duration of the loan.
Other ways of measuring the cost of a payday loan
For many, understanding the thousands of percent of APR is very confusing. Other ways to understand the cost of a payday loan are by comparing the cost per £100 borrowed and the daily interest rate.
As per the price cap that has been introduced to the payday loan industry as of 2nd January 2015, there will be a limit to what payday lenders can charge. Before the price cap, the average rates that lenders’ charged was 1% per day or £130 per £100 borrowed. However, with the price cap being enforced, the maximum that payday lenders can charge will be fixed as 0.8% daily interest that equates to £124 per £100 borrowed. Any rates below this are very competitive and there are actually some lenders that have been charging below this for sometime.
What could make your payday loan a bit cheaper?
Whilst payday loans represent high costs of credit, there are ways to make your payday loan cheaper. Firstly, comparing payday loans and trying to find the best rates means that you can borrow the same amount from a lender but repay less. Secondly, using instalment loans that are repaid over 3,6 or 12 months spread the repayment over time and is overall cheaper as a result. Lastly, if you can repay your payday loan or instalment loan early, you will only be charged the days that you have had the loan open for, saving a lot of money in the process. There are several payday lenders that we feature and do not charge your extra fees for doing so.
Use our comparison table to compare payday loans. Our site is completely free to use and will allow you to compare the prices effectively and find the right lender for you. Once you have found the lender to suit your requirements, you can click through directly to their website where you can apply. We do not require any details from you so we won’t pass your details onto any other companies.
Warning: Late repayment can cause you serious money problems. For help, go to money advice service.