online payday loans

Payday Loans: What is APR?

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In today's challenging economy, most of us find ourselves in a pinch from time to time. It's four days until payday, but rent is due tomorrow. Payday loans can be a viable solution to problems such as these where you need a little money to hold you over until your next paycheck clears. Before taking out one of these loans, however, it is very important to understand the terms clearly and know what you are getting into. You need to have a reliable system for comparing different loan offers that will ensure you choose the one that best fits your needs./p>

The best way to compare different loan products apples-to-apples is to compare annual percentage rate (APR). The APR is defined as the annualized interest and fees that must be repaid compared to the amount borrowed, and it can differ wildly from the simple interest rate./p>

This is especially true for payday loans which often have interest rates that are misleading. For example, a payday lender may offer a loan at a 20% interest rate, which doesn't sound too bad if you are desperate for money. After all, that rate is comparable to most credit cards. However, with this particular payday loan, the principal plus the 20% interest must be repaid in 30 days. This means the loan has a daily interest rate of 2/3 percent (20 percent divided by 30 days), which extended out over a year produces an APR of almost 250 percent (2/3 percent times 365 days)! Quite a difference from the 20% simple interest rate advertised by the lender./p>

Payday lenders provide a valuable and needed service, but misunderstanding the terms of these loans can lead to financial disaster. Before taking one out, ask what the APR is so you will know the "real" cost of the loan. Make sure you are clear on the repayment period as well as the fees and penalties for going beyond that time. A little knowledge can keep a temporary financial setback from becoming something much worse.