Finance Literacy

Almost everyone knows what APR stands for because they have seen it in home loans and other loans that they may have had to get or know about. A payday loan APR can be a hard thing to understand and for good reason.

There are many states that have regulated the maximum APR for payday loans and this is a really good thing. It’s not going to be close to what you are thinking for an APR though. Try looking a lot higher because a short term loan often has a very high APR.

What is an APR?

Many people don’t know what an APR really is, or what a payday loan APR is at all.

APR is the acronym for “Annual Percentage Rate”. This annual rate is what is attached to a loan. In the case of something large, perhaps a mortgage loan or even a smaller loan for business purposes, the percent of the APR is generally low. The reason is that these loans take longer to pay back to the lender.

But, a Payday loan APR doest work a little differently.

How Does Payday Loan APR Work?

Payday loan APR is a bigger number than the home loan APR because it has one of the highest interest rates on any sort of loan because it is so short term. These loans are normally between 7 and 14 days so they are very short so you normally only pay around $10-$40 in interest.

You can normally find APR numbers between 250% - 390%, which is rather large, until you consider that you’re borrowing just a small amount, and you’re going to pay it back quickly.

Some states have regulated the highest possible APR that payday loan companies are allowed to use, along with other things - like how long a loan can be out, and if you can renew it or extend it in any way. These laws vary wildly - while some states have very strict laws, some have none at all.

Things to Look for in a Payday Loan

When searching for a payday loan APR should be something that you keep at the top of your head. The lower the APR, less that you have to pay when you’re going to pay back your loan.

Watch out for your fees also, an APR may look good at first, but then the fees will end up costing you more then you are paying in interest. Keep your eyes open for the best companies that offer you the lowest fees and rates.

Remember…

You should borrow wisely and don’t go with a company that has high payday loan APR rates or you will feel it later.