What Is APR?
APR (Annual Percentage Rate) is the interest that is payable on the money that you borrow. When looking at short term loans like payday loans, APR is a bit of a tricky subject as the rate at first glance seems extremely high. Because APR is an annual rate, when it is used to calculate the rate of loans that have durations of less than 1 year, the APR starts to inflate. This is because it is very difficult to compare the APR for one loan with a 30 day duration, to the APR for another loan with a 20 year duration like a mortgage.
So, What Does It All Mean?
As payday loans are financial products, all payday loans lenders must legally display their APR. That is why they also tell you upfront in real terms how much you will need to repay. An easier way to look at repayments is the transparent costs instead of the APR, for example if you borrow £200, you will have to pay back £269.90 after 30 days.
Another way to look at the APR is to compare it to other short-term services. Imagine trying to hire a car and being told how much it would cost you if you needed it for a year – maybe £18,500. Or even renting a DVD and being told it would also cost you over £1,000 to rent for the whole year. If you thought about these short-term services in relation to how much they would cost annually, it all sounds a bit ridiculous.
Payday Loans – A Cheaper Alternative?
So when you see our APR, don’t be scared off by how high it looks, as the repayment costs of a cash advance aren’t as much as you might first think. When used responsibly, payday loans can be cheaper than the alternatives, like going over your overdraft limit.