Getting Your Head Around Payday Lender Rates

Why Are APR`s So Much?

Payday Lenders are unfortunately obliged to use an APR (Annual Percentage Rate) as it is known when calculating  interest. This reflects the total charges of interest on the amount you have borrowed including other charges such as admin fees etc over a yearly rate.

The problem with this is that it appears to greatly inflate the amount you may have to pay back on your loan payment as the APR is designed to show you an Annual Percentage Rate, this is not catered to short term borrowing.

As we all know a payday loan is designed to do just that provide you with a cash injection until you next get paid usually and is ideal for a time scale of anything up to 30 days. Because of this although the APR may appear to be a very high interest, the actual amount you would pay back is comparatively low to the amount borrowed.  If the payday lender rate is 2,339% representative APR, it typically works out at £30 to pay back on every £100 borrowed. If you borrow £100 you will pay back £130 on your next payday in a lump sum to the lender. As you can see from the real life example the actual amount you pay back doesn’t reflex the scary looking APR which by law needs to shown due to government legislation. As long as you use a payday lender responsibly and pay the amount back within the specified time frame you will be hard pressed to find a quicker and more effective method to borrow money over the short term.  Please note as this form of credit is only designed as a short term solution to a cash flow problem, failing repay the amount owed could result in further interest being added to the amount borrowed and if this is done over and over again that is when problems arise in the amount you pay back.