Learning about a Payday Loan APR

July 22nd, 2008 | Posted in Loans

Almost everyone knows what APR stands for because they have seen it in home loans and other loans that they may have had to get or know about. A payday loan APR can be a hard thing to understand and for good reason.

Many states have regulated the maximum APR for payday loans, which is a good thing - but don’t think that it’s only going to be something like 10! A short term loan often has high APR.

Understanding an APR

Many people don’t know what an APR really is, or what a payday loan APR is at all.

APR is the acronym for “Annual Percentage Rate”. This annual rate is what is attached to a loan. In the case of something large, perhaps a mortgage loan or even a smaller loan for business purposes, the percent of the APR is generally low. The reason is that these loans take longer to pay back to the lender.

However, with Payday Loan APR, it works a little differently.

How Does This Work?

Payday loan APR is a much, much bigger number than a home loan APR is - it has the highest interest rates on any sort of loan, but that’s because it is a very short term loan. Usually between 7 and 14 days, these loans don’t span much at all - so you usually end up only paying between $10-$40 in interest.

To show just how astronomical these rates are consider that APR rates for payday loans are most often between 250% and 390%! This in itself is a ridiculous number but then when you consider the loan itself is small, if it can be paid back quickly, the rate is not so painful.

Some states have regulated the highest possible APR that payday loan companies are allowed to use, along with other things - like how long a loan can be out, and if you can renew it or extend it in any way. These laws vary wildly - while some states have very strict laws, some have none at all.

When Searching for a Payday Loan…

When you go looking for a payday loan APR, there are a few things that you should keep in mind. That’s the APR. The lower it is, the less you will need to pay when you are getting ready to pay your loan.

However, sometimes people overlook the fees. What happens is that they see the APR and believe it is reasonable but once fees are added, they realize they are paying outrageous fees for a loan. Therefore, it is always best to look for loan companies that offer not only a low APR, but also low fees.

Things To Remember

Remember to borrow wisely, and don’t go with a company that has too high of a payday loan APR - you’ll feel the crunch later!