How Payday Loan Interest Rates Are Calculated
It’s always important to have a contingency plan, in case you run into hard times. Everyone would love to have enough cash available on hand for emergencies, but the reality is money doesn’t grow on trees. This is where payday loan companies come into play. By lending you the money for a short time, they provide a level of comfort, keeping the creditors off your back.
Common questions our direct lenders are always asked is “what are the interest rates?” and “how are interest rates calculated?” It’s important to understand how interest rates work, as the last thing you want to do is take out a loan with a low amount that costs a fortune in the long-term.
The key is to understand the process. That way, you won’t have any bad surprises regarding payday loan interest rates.
How It Works
At its most basic, the way it works centers on two things: APR and the length of the loan. Depending on the annual percentage rate and the duration, the amount can fluctuate. For example, a $500 balance with an average 1,500% APR will accrue $500 of interest over three months. However, the amount drops to $130 if the length of the loan is reduced to a month. And, that’s without lowering the APR.
As soon as the payday loan interest rates drop below 800% APR, the amount you have to pay on a $500 loan is $100 and under. As a rule, the two things which impact any loan, regarding borrowing, are annual percentage rate and length.
What Are The Interest Rates?
It depends on the company and the state as legislation varies. However, the good news is that the Uniform Small Loan Laws, or USLL, has worked tirelessly to prevent excessive rates of interest from lenders. As a result, the typical annual percentage rate is anywhere between 30% and 40% in the USA.
Using the same figure as above as an example, this means you will pay no more than $16 on a $500 loan for a single month. This is about the same amount if not lower than the standard credit card charge.
Can I Get A Payday Loan Anywhere?
No, you can’t because certain states have banned payday loans as they don’t agree with them. Out of fifty states, thirty-six of them allow some form of borrowing. Georgia is one such state where it has been banned altogether.
Across the rest of the country, the government and states have worked together to regulate the industry. An example is the District of Columbia where the rate of interest is capped at 24%. This is the same as loans from banks and credit unions.
Be sure to check out your state’s legislation to see if you are eligible for a payday loan. Also, make sure you take a look at the restrictions if there are any.
How To Use Payday Loans Properly
To avoid getting caught out by payday loan interest rates, it’s important to understand them. For one thing, payday loans aren’t a long-term solution. Because the duration of the loan increases you the amount you need to pay, it’s essential to pay them off ASAP. Think of it as a credit card in this respect. Pay off the balance in full the next month and you won’t incur interest charges.
Secondly, it’s a means to tide you over when you have no money in your account. There is no need to borrow the cash unless your situation fits these three categories:
- You are broke
- There are no other alternatives
- It’s affordable
Sometimes, a credit card or bank loan isn’t an option as you may have bad credit. Online payday loan companies are a good choice as long as you can pay back the loan quickly. They are often happy to help you find a direct lender.
The Benefits Of Payday Loans
You may thinking, “why bother with payday loans and payday loan interest rates?” The answer is because they have advantages. For one thing, it’s an unsecured agreement so there isn’t collateral attached to the deal. This means the creditor can’t take your property or another valuable asset if you miss payments or forfeit the loan.
There is tighter regulation now and extra protection for applicants. As payday loan interest rates are capped, there aren’t as many horror stories about bankruptcy. Plus, it means people who need a loan have a greater level of accessibility as well as more options.
In the past, banks used to control peoples’ finances yet that isn’t the case any longer. If you need a payday loan, start an application today with Snappy Payday Loans and we can help you find a lender.