Intended to give a clearer picture of borrowing, the Annual Percentage Rate (APR) of payday loans can be rather off-putting when measured against those of long-term loans.

However, when it comes to comparing loans based solely on their APR, the results don’t often portray the true costs involved.

What is APR?

Calculated over a year, APR is the combined cost of all interest charges and relevant fees during this period. Though as most payday loans in the UK are taken out for a matter of months rather than a year, the APR can be slightly misleading. Instead, when calculating APR as a daily interest rate, you can end up paying less when borrowing through a payday lender (assuming you are making your repayments on time) than you would when borrowing the same amount via your credit card. This is because by taking longer (often by making minimum monthly payments only) to repay your credit card balance, your account invariably accrues significant amounts of interest.

How is APR Calculated?

When it comes to calculating the APR of a loan, several variables are considered. These include:

  • The interest rate of the loan
  • How frequent repayments are due (weekly, monthly, etc.)
  • Any initial fees when the loan is set-up
  • Any other charges included with the loan

It’s important to note that when calculated, the APR doesn’t include any compulsory charges, such as payment protection, or any late payment fees.

Why is APR Important?

While APR may be confusing when we talk about short-term loans, it does offer several benefits to borrowers such as:

  • It makes comparing loans clearer for the borrower
  • It prevents lenders from concealing additional charges
  • It provides a clear overview of all the charges involved with your loan

Representative APR

It’s very likely that if you are comparing different loan products, the APR offered will actually be a representative APR. A representative APR only needs to be offered to 51% of those who take out a loan, meaning that nearly half of those who apply do not get the advertised rate.

What Other Factors Influence Repayment Amounts?

What few people take into consideration, however, is the fact that the overall repayment amount is not only determined by the APR, but also by a range of other variables. A closer look at these variables reveals that short-term loans can be as cost-effective (if not more so) as long term borrowing with lower APRs.

Compound Interest

Many long-term loans and credit cards also operate based on compound interest. Often calculated on a day-to-day basis, this means that if you take out a loan over £200, for example, and the interest rate is 10%, you would not only have a total repayment of £220 but would also accrue interest on the £20 interest for the duration of the loan. As such, compound interest has the potential to add a significant amount to your total repayment figure.

Additional Charges

On top of the interest, many providers of long-term loans also levy additional charges, often including:

  • Fixed administrative fees
  • Credit transfer charges
  • Early repayment charges
  • Late payment charges

While some payday loans may also include such fees, they do tend to be highly competitive when comparing them with other borrowing options. It is therefore wise to not just look at the APR but to read through all of the ‘small print’ to determine the precise loan duration, additional charges and the total repayment figure. Doing this will help you to make a more informed decision on which type of loan is suitable for your requirements.


With payday lenders like Uncle Buck, there are no additional or hidden charges. We show you exactly what you can expect to repay and more on our website; on the pre-contract documentation we send to you before asking to commit yourself to a loan and again on the contract you receive when taking out a loan.

Questions about our short-term loans? Then feel free to contact our friendly customer support team on 01959 543400 or email

* Calls may be recorded and monitored for security or training purposes. Call charges may apply and vary depending on your telephone provider.