That the APR (or Annual Percentage Rate) of payday loans is somewhat higher (most short term loans have a representative APR of 1269.7%) than that of long term loans is a well-known fact.
About the APR
As the name suggests, the APR is an annual (yearly) expense that only really comes into play if your repayment period is longer than a year. When recalculating the APR as a daily interest rate, you often end up paying less when borrowing through a new payday lender (assuming you are making your repayments on time) than you would when borrowing the same amount via your credit card. This is due to the fact that by taking longer (often by making minimum monthly payments only) to repay your credit card balance, your account invariably accrues significant amounts of interest.
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.
Many long term loans and credit cards also operate on a basis of compound interest. Often calculated on a day-to-day basis, this basically 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.
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 take the time and look at every bit of ‘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 most 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 the loan.
Peruse our site or call one of our representatives on 01959 543 400* for more detailed information.
* Calls may be recorded/ monitored for security/ training purposes. Call charges may apply and vary depending on your telephone provider.