APR or Annual Percentage Rate determines the amount you need to pay back on a borrowed loan over one year. In case of payday loans, APR becomes complicated since it is for a short-term loan that needs to be paid back in 35 days or even less. Hence, APR for payday loans is usually higher in comparison to other loans that are for a longer period.
Understanding a payday loan and APR
Payday loans are small, short-term loan that offers quick money to people who are in some financial emergency. The borrowed amount is to be repaid within 35 days or a month.
APR is represented as the percentage calculated on the yearly amount that is to be paid for a loan. It calculates the loan cost for over a year. For short-term payday loans, the cost of the loan is multiplied as it is to be paid within a short term and not spread over a year.
Applying for a payday loan with a low APR
If you are looking for a low APR on a payday loan, connect with LoanPig, the direct lender and also a loan broker that gives access to a huge panel of lenders in the UK so that you find the best deal available. They offer fixed APR on instant payday loans that can be as low as 199% for a new customer while only 149% for their existing loan customers and can be 292% depending on the credit history.
The company offers flexibility on their loans allowing you to borrow £1500 with a quick online application. Visit https://www.loanpig.co.uk/payday-loans/ to get the best loan you need even if you have a poor credit history.
Why is APR higher for payday loans?
Payday loans have a high APR because even if the loan lasts for a few weeks or a month, the figure is compounded to make the loan seem “annual”. This results in an unrealistic and highly inflated percentage amount.
Payday lenders are needed to provide a representative APR while offering a loan to their borrowers. Representative APR refers to the rate offered to at least 51% or more of borrowers are offered. This means that there is a 49% chance of receiving a different rate that can be higher or lower than the rate based on assets like your credit status and affordability. Moreover, having a good credit score and a low debt might offer you the possibility to receive a rate lower than the APR that is advertised.
How to calculate the cost?
According to UK laws, lenders need to specify the APR on each loan they offer. This makes it easier for consumers in comparing different loans from various lenders. However, it does not allow you to understand the actual amount you will pay.
Therefore, the best way in the case of payday loans is to focus on the payable cost or the overall cost. This allows you to know the amount you will be paying for making affordable repayments before taking a loan while also allowing you to get the best deal.