Payday Loans and the APR Puzzle

Payday Loans and the APR PuzzleThere are mysteries in the universe the human mind cannot comprehend or grasp at once and one is the APR in payday loans. What is the significance of this bit of puzzle in high finance?

The APR

Someone intelligent came up with the APR to protect consumers from devious lenders. You can compare the APR or Annual Percentage Rate to the list of ingredients in a jar of pickles. From that list of ingredients, you know what you are going to get, loads of sodium and water and fresh pickles. With an APR in payday loans, you know how much you are paying for a loan in the course of a year. That includes the interests, charges and other mysterious fees.

But if payday loans are short-term loans, what is an APR doing here? Is someone joking? No; so tighten your seatbelts please. An APR in short term loans reflect the fees on these loans. This is supposed to help you make an informed choice before you take out a fast loan.

If you take out a $200 loan, the fees might be $50 assuming this is the going rate for loan fees. Change the two weeks into a year. There are 52 weeks; divide this by 2; you get 26 two weeks in a year. Now multiply the 50 fee by 26 weeks you get 1,300 yearly charges. To get the APR percentage divide 1,300 by 200 you get an outrageous 650% APR! It's all right; you can take a deep breath now. Got the picture?

Don't Rush

When in die need for cash, people will do everything to get it, not realizing the full extent of the consequences. They will grab payday loans with astronomical interest rates thinking that the extra $25 is nothing compared to the urgency of their need. Don't hurry because of an emergency. Take your sweet time to compare interest rates. In the case of a grand default, you know how much it will cost you to recover from the debt.

Don't be intimidated by any lender. Go ask for the APR. Lenders are required by Federal law to post the rates so there is no reason why your lender should hesitate to let you know of the APR of your loan. If the lender does not provide you the APR, it is time to shop for another lender. With hundreds of lenders out there, you can find one who can satisfy your requirements before satisfying his. Touche!

Knowing the APR can galvanize you to pay payday loans on time. Go ahead and ask for the APR; it is your right as a consumer to know the APR of loans, mortgages, and credit card debts. The APR is your guidepost to reasonable loans and at this time, you cannot mess with your money.