Fast Payday Loans: Interest Rates
If you're considering using fast payday loans, there are going to be some times when they are going to be useful and some situations in which they won't be. You should not let the high APR rate on display put you off though, as that really isn't something that should be applied to payday finance.
APR
The APR stands for Annual Percentage Rate. What this means is that it is the amount of interest that you have to pay in a year while the loan is active. It's a legal requirement that lenders display this prominently so that people can easily compare the costs of different sorts of loans.
As a guide to compare how much loans are going to cost you this is a useful guide. That is, if the loan is going to last a year or more. However if you're not then this will overestimate the amount that you are being charged, and that is the case with fast payday loans of course.
With a pay day loan, one of its main features is that you have to repay it the next time you are paid from your monthly salary. The other main feature of course is that you can get the money quickly, which is necessary since it is such a short term loan.
From this, then, it should be very clear why it is not appropriate to judge pay day loans on the APR rates which they have. It shouldn't take you anywhere near a year to pay back a payday loan as it is only supposed to take a month. In fact the APR hardly ever tells you exactly how much interest you are going to have to pay, for long term loans it is actually usually more than that.
Clearly then, with a payday loan only lasting a month, the APR grossly overestimates the amount of interest that you are going to have to pay. When you look in more detail at the actual amount of interest that you are being charged it usually turns out to be about the same as what you are charged for a long term loan overall.
When to use Payday Loans
So at this point hopefully you are going to be satisfied that is at least worth considering payday loans, as their interest rates are not actually all that high. Having said that though, it is still important that you're careful about the way that you use them.
The way that conventional loans are used usually comes down to the fact that you are getting a large amount of money and you can pay it back over a long period of time. This means they are usually used for luxuries like holidays, home improvement, cars, or something of that order.
Clearly these are not going to be appropriate uses for a pay day loan. Very few people could afford something expensive like that from a month's salary, and if they can then they are better off waiting anyway. So it's important to remember that you can't get it for anything which you couldn't afford with a month's salary.
Due to the way that payday loans are structured, the time when it will be most useful to use them is when you are facing a financial emergency. That is, a time when waiting to make the payment would lead to large negative consequences, and you can afford it from a month's pay. For example, paying for a utility bill is a common way that they are used.
When you need money badly enough to be considering fast payday loans it will probably be an appropriate time to use them. And as stated, you don't have to worry too much about the APR, as the interest rate is not really as high as that makes it appear.
APR
The APR stands for Annual Percentage Rate. What this means is that it is the amount of interest that you have to pay in a year while the loan is active. It's a legal requirement that lenders display this prominently so that people can easily compare the costs of different sorts of loans.
As a guide to compare how much loans are going to cost you this is a useful guide. That is, if the loan is going to last a year or more. However if you're not then this will overestimate the amount that you are being charged, and that is the case with fast payday loans of course.
With a pay day loan, one of its main features is that you have to repay it the next time you are paid from your monthly salary. The other main feature of course is that you can get the money quickly, which is necessary since it is such a short term loan.
From this, then, it should be very clear why it is not appropriate to judge pay day loans on the APR rates which they have. It shouldn't take you anywhere near a year to pay back a payday loan as it is only supposed to take a month. In fact the APR hardly ever tells you exactly how much interest you are going to have to pay, for long term loans it is actually usually more than that.
Clearly then, with a payday loan only lasting a month, the APR grossly overestimates the amount of interest that you are going to have to pay. When you look in more detail at the actual amount of interest that you are being charged it usually turns out to be about the same as what you are charged for a long term loan overall.
When to use Payday Loans
So at this point hopefully you are going to be satisfied that is at least worth considering payday loans, as their interest rates are not actually all that high. Having said that though, it is still important that you're careful about the way that you use them.
The way that conventional loans are used usually comes down to the fact that you are getting a large amount of money and you can pay it back over a long period of time. This means they are usually used for luxuries like holidays, home improvement, cars, or something of that order.
Clearly these are not going to be appropriate uses for a pay day loan. Very few people could afford something expensive like that from a month's salary, and if they can then they are better off waiting anyway. So it's important to remember that you can't get it for anything which you couldn't afford with a month's salary.
Due to the way that payday loans are structured, the time when it will be most useful to use them is when you are facing a financial emergency. That is, a time when waiting to make the payment would lead to large negative consequences, and you can afford it from a month's pay. For example, paying for a utility bill is a common way that they are used.
When you need money badly enough to be considering fast payday loans it will probably be an appropriate time to use them. And as stated, you don't have to worry too much about the APR, as the interest rate is not really as high as that makes it appear.
About the Author:
If you happen to be in the position when you require a fast payday loan, go to Fast Payday Loans to get the very cheapest interest rates. You will find more writings by Nicholas Pugh at that site.
posted by Vittoria @ October 17, 2011
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