What is APR rate?
The term annual percentage rate of charge, corresponding sometimes to a nominal APR and sometimes to an effective APR, is the interest rate for a whole year, rather than just a monthly fee/rate, as applied on a loan, mortgage loan, credit card, etc. It is a finance charge expressed as an annual rate.
What is payday loan APR?
Many state laws set a maximum amount for payday loan fees ranging from $10 to $30 for every $100 borrowed. A typical two-week payday loan with a $15 per $100 fee equates to an annual percentage rate (APR) of almost 400 percent. By comparison, APRs on credit cards can range from about 12 percent to about 30 percent. In many states that permit payday lending, the cost of the loan, fees, and the maximum loan amount are capped.
If you take out a $500 payday loan with an APR of 391 percent, you’ll owe about $575 two weeks later. The loan cycle rarely stops there, though. Many payday loan borrowers “roll over” the loan multiple times. Do that for just three months and the amount due is over $1,000.
Payday loans are dangerous but borrowers who need emergency cash can get it to solve financial problem even high APR rate.
Lenders charge different APR
Many lenders charge different rates of interest depending on how much you want to borrow, and how long you want to borrow it for. However they may only display a single representative APR figure on their site, summarising the full range of loans they offer. This goes for some payday loan comparison sites too, where you may see loans with similar projected costs but wildly different APRs.
APR Calculation Formula
If you can’t trust the APR, what do you do? You can calculate APR rate by your self with formula as below:
FEE (Origination fee + Interest) divided by AMOUNT FINANCED divided by NUMBER OF DAYS OF TERM OF NOTE multiplied by 365 multiplied by 100 (this will put your decimal place in correct place) = APR
$20 / $100 / 14 X 365 X 100 = 521.42 APR ($100 loan for 14 days with $20 fee)
$80 / $500 / 14 X 365 X 100 = 417.14 APR ($500 loan for 14 days with $80 fee)
$155 / $1000 / 14 X 365 X 100 = 404.10 APR ($1000 loan for 14 days with $155 fee)
When comparing lenders?
You should first consider how much money you really need to borrow. Once you know how much you need, compare different lenders by focusing on the overall cost, also sometimes referred to as the “total payable”. Aim to keep this figure as low as possible, while ensuring you can comfortably afford the repayment schedule.
The repayment period you opt for will normally depend on the affordability of repayments. While you’ll want to pay off your loan as soon as possible, make sure the repayments are realistic for your budget so you don’t end up with further financial pressure. Many lenders charge late payment fees of up to $20, which could dramatically increase your overall bill.