Thinking Through Fast Cash Advance Borrowing Rates
December 5th, 2007
A frequently asserted recrimination by critics of the payday loan trade concerns the rate of interest p.a. normally charged on a short term payday loan which can build up to hundred percent or higher. For more information about getting a payday advance go here.
As you will know, the annual percentage rate or “APR” can be defined as a simple measure formalizing the entire amount of interest a client would be paying during one entire year. This gives us the fundamental for gauging which expedient sports a higher / lower ultimate expense to the borrowing party, accommodating contributory costs that may be required.Clearly APR may be considered a decidedly relevant gauging technique applicable to loans extending over a span of a full year at least .On the other hand, in regard to short term payday cash advances the annual rates of interest are incontrovertibly hardly beneficial.
Rather, liken fast cash advances to taking a taxi home from the office meeting. It might cost you 40 dollars to get back home. Now 40 dollars is quite a bit of money to spend on a ride home despite which people do it all the time for the simple reason that it’s agreeable and accommodates a need. Ok, so we all know that one could hire a car for an entire day for 40 dollars allowing us to drive as many miles as we wish.
Let’s just say we do that- i.e. rent a car and drive say four hundred miles during the one day we’ve rented it. Defenders of APR would probably attest that you will have to annualize this data to attain to reasonable comparisons! Ok, let’s check this. So we take the fee the taxi rider will charge us (= $2 per mile times 400 miles) making for eighthundred dollars. The APR equivalent of the car rental arrangement vs. the taxi fee is $40 against $800. Of course, you and I know that car hiring we opted for was not the world’s best option, regardless of how much more expensive that APR would have been in this particular case.
And exactly the same holds true for short term payday bridging loans. Payday advance loans are limited to two weeks, they are not annual loan arrangements. The high “APR” should not be relied upon in view of the fact that this specific type of loan does not apply to a full year. In absolute numbers, the interest rate tallies as about 15 - 25% for the loan. A fast payday loan is a cost intensive option you should not take up without prior consideration of all available alternatives.
Of course, they can help us when trying to survive some financial extremity. Yet they were never implied to serve as intermediate or long-term liquidity tools.
Entry Filed under: Instant Loans