Though cash advance loans are becoming more and more popular, not every low interest payday loan is created equally. One of the things that sets these loans apart is the APR attached to the loan term. payday loans are easy and the companies that provide them are held in check by government regulations. Congress passed the Truth in Lending Act for a number of reasons, one of which is to regulate the payday loan industry. Because of that, these payday loan lenders must give you certain information about their available loans. How you find out this information will be different depending upon the financial institution that you use, as some companies choose to list the rates on their website, while others will simply tell you the rate after you apply.
But how do you figure out just what your APR is when you are just given the fee at application time? You can do it using an easy formula. This way, you will be able to tell the difference between the low interest advance loans and the not so good loans in this industry.
Making use of the APR formula
The first thing you do to identify the interest rate on your no fax payday loans is to multiply the associated fee and however many payment periods happen to be in that year. For instance, if you take out a loan that has a bi-weekly fee, you will be multiplying by 26 payment periods.
To continue the practical example, let us assume that this piece of credit has a $20 fee associated with it for each $100 that you borrow. This fee would be higher than the average fee, and it all differs depending upon the state that you live in. Under these circumstances, we would have a formula that looks as follows:
20 x 26 = 520
What this gives us is our annual loan charge. That doesn’t give us the interest rate for our low interest payday loan, though, so we need to continue with another step. Now we need to take the annual loan charge and divide it by the total amount of our loan, then we will multiply that by 100 in order to get a percentage.
Here, we would take the 520 and divide it by 100 in order to get 5.2. We would then take that 5.2 and multiply by 100 in order to get out APR of 520%.
520 (annual charge) / 100 (original loan amount) = 5.2
5.2 x 100 = 520%
What does all of this mean?
With a low interest payday loan, the responsible way to play is to take it out for covering an emergency. When used correctly, it can be a good tool to get you out of the whole or bridge a gap. Long term credit needs should consider something a little bit more sturdy, like a credit card or a personal loan.
