First I should explain what APR or Annual Percentage Rate means.
APR is calculated as the amount of interest you will have to pay on your loan if your loan in one year. This is very useful for such things as mortgages as it allows you to compare different mortgages and choose the right one for you. It is generally better to choose a product with a lower APR – that is when all other factors are equal.
For example, if you have loan A for 5 years at 10% APR and loan B for 5 years at 8% then loan B should be the better choice. The lower the APR the better is the general rule.
Things get confusing however, when we want to compare APR for short term loan products as payday loans are meant to be a short term solution to be repaid on the next payday. Payday APR’s vary between 1000% APR and and around 3000% APR and yes these numbers ‘look’ scary but when we remember that APR is calculated on the amount of interest over a year it makes sense as payday loans are generally taken out for between 7 days and 3 weeks in most cases.
Other short term products would look equally scary if we applied their rates over a year.
DVD Rentals : £3 a day or £1068 for a year
Taxi to the airport : £60 or £512,640 for a year
1 week holiday : £1000 or £52,000 for a year
Calculating an annual cost just doesn’t make sense with short term products such as taxi’s, holidays or payday loans, but as payday loans are a financial product, legally lenders have to display their APR on their products clearly.
Payday Power likes to keep things as simple as possible and that is why we also display our actual charges which are fixed at £25 for every £100 borrowed. So if you borrow £200 you will need to repay £250. Your actual APR although very high does not change the amount you will need to repay. The cost of your short term loan is based on the amount you borrow and that’s it.
View our loan chart to see exactly what our loan costs are.
Still think APR is important when getting a payday loan?
Loading ...