If you have in the past applied for any instant loan or have currently taken one, you are likely to have heard about Annual Percentage Rates (APR). Simply put, it is the interest that your lender charges over the principal amount you had borrowed. It is probably the single important component of your loan that you need to thoroughly understand in your own interest. Sometime in the past, when APR did not exist, there used to be a breakup of different charges that a customer was required to pay. Things have now been more simplified and all you now need to know is the APR. This gives you the opportunity to not only know your exact repayment obligations but also to compare APR across multiple lenders.
What is APR?
Let us understand APR with an example. APR is calculated by multiplying the simple interest the lender quotes with the number of terms for repaying the loan. For example, if you have taken $100 at a simple interest of 10%, to be repaid after a two-week term, then the APR is 10%. This means that if you repay the loan after two weeks, you have to pay a total amount of $120. The amount is arrived by applying the simple interest formula where the principal is multiplied with time and rate of interest and the resultant amount is divided by 100.
So, it really makes sense to understand how APR is calculated
The main conclusion from the above exercise is that the longer your term, the more you pay. So, that gives you a valuable clue on how to handle payday loans. Let us understand with an example how expensive a payday loan can become over a longer period of time. On a payday loan of $100 with an interest rate of 10%, to be repaid after 10 weeks, if the calculation basis is two weeks, the term is 5. So, the total interest you have to pay is 50%. The total repayable amount, if you pay after 10 weeks, is $150. So, the longer you stretch a payday loan, the more you have to pay. So, the best thing to do is to repay the loan as quickly as you can.
The government has made it mandatory for payday lenders to make public the APR they are charging from the customers. The Truth in Lending Act (TILA) makes it mandatory to make public the APR. According to Senator Paul Douglas, who co-authored the Act, “the right to be informed-to be protected against fraudulent, deceitful, or grossly misleading information, advertising, labeling, or other practices and to be given the facts he needs to make an informed choice.” He also noted that it serves to “invigorate competition” by protecting the “ethical and efficient lender.”
So, obviously, to get the best out of such loans as fast personal loans and faxless loans, be aware of the terms and conditions.