How to Calculate the REAL Cost of Payday Loans wiht high APR.

$100 – $1,000 Payday Loans are often avoided because of hight interest and APR. But if you get into details, you find out they are not so expensive as it may seem. Short-term cash advance is due with your next paycheck, which means not later than 31 days usually. Even with the APR of 400% the total cost of the loan borrowed for a month won’t be more than $33. It’s only about $1 a day! Let’s prove this fact and count together. APR, MPR, interest and other financial charges definitions.

Though 12 million Americans regularly take easy, fast and convenient Payday Loans Online, these loans are still notorious for too high interest and APR. Annual percentage rate or “APR” is a percentage representation of the actual yearly cost of funds over the term of a loan. In the U.S., the calculation and disclosure of APR is governed by the Truth in Lending Act (implemented by the Consumer Financial Protection Bureau1 (CFPB) in Regulation Z of the Act2).

Interesting to know!

The APR is different in every state. It’s usually regulated by state law. The highest interest rate is in Idaho (582%), followed by South Dakota and Wisconsin (both 574%), Nevada (521%), Delaware (517%), and Utah (474%). The lowest APR can be found in Colorado (129%), Oregon (156%) and Maine (217%). Fifteen states either ban payday loans or cap interest rates at 36%.

But let’s not forget that a payday loan is a short-term small dollar cash advance. The APR is calculated as if the money were borrowed for one year. The fact is that such numbers as 350%, 400%, 500% APR sound impressive, but in reality, they’re not so much. Let’s imagine a borrower asks for $100 and promises to return the money tomorrow.

The APR is said to be 385%. Is it that much? I bet you think it is! But it’s only $1. Paying a dollar is no big deal, isn’t it?

For example, the average APR for Payday loans in the US is 400%. What does that mean? If you borrow money for a year, you’ll have to pay 400% extra. As you know, Payday loans are allowed in an amount from $100 to $1000. And the repayment term doesn’t exceed one month. So, you’d probably be better off finding out what the MPR (monthly percentage rate) is. For that, we just divide the APR by 12 months. For example, if the APR is 400%, the MPR will be 33%.

Now we can count the daily cost of $100 cash advance borrowed for 30 days:

400%: 12 months = 33% (MPR)

33%*100%: $100=$33 (you overpay a month for $100 borrowed)

$33:31 days+$1.06 (you pay for the borrowed money per day)

Thus, for a $100 Payday loan, you pay only $1 a day!!! It’s the cost of a pack of crisps or an ice-cream. Is that too much for an easy and convenient solution to your financial problems?! Probably the majority of the Americans would agree, it’s not. They are ready to sacrifice a chocolate a day for having money to pay their medical bill.

Must know!
Make sure you pay off your loan on time. If you fail to, you might ask for a rollover or repayment plan which can cost additional fees. Besides the MPR will be counted on the new greater balance after a month, which includes the original loan as well as the interest you have built up.

HOW CAN I CALCULATE THE COST OF PAYDAY LOAN?

To find out how much you’ll need to pay off, you have two options:

1. Calculate it yourself. For that you need: the principal amount you are going to borrow, and the APR the lender charges. The total cost of the cash advance is counted by the following formula:

Total cost = Principal + (Principal * (APR: 365 days x number of days): 100%)

For example, if you borrow $100 for 14 days with an average APR of 400%, the total cost will be:

$100 + ($100 * 400%: 365 days * 14 days: 100%) = $115

It means in 14 days you’ll pay back $114 for using a loan of $100, it’s only $14 overpay.

Remember!
Besides the APR, there may be some other additional fees such as an administration fee, origination fee, etc. So remember to compare lenders’ charges as well as their APRs and make sure you fully understand all the charges before you commit to borrowing.

2. You can take advantage of Internet technology and use online calculators; fast, convenient and free. They generally require the amount borrowed, the length of the loan and the APR stated by the lender or by your state. Filling out these data, you’ll find out how much you’ll pay in fees, how much you’ll pay in total and sometimes even the amount of a fortnight payment. Or vice versa, if you know the cost of the cash advance, using the calculator, you can learn the Annual Percentage Rate.

To make it clearer and understandable, we’ve counted the primary costs for every state according to the APR allowed by law, and present it in the following table:

Calculating the cost of the loan is a good way to compare the lenders as you can see what they offer to you in very accurate figures.

WHAT ELSE BESIDES THE APR IS INCLUDED INTO PAYDAY LOANS’ COST?

APR, MPR and the total cost of the loan is the minimum you must definitely take into account borrowing money. But in some cases, it’s not enough. There are lenders that charge extra fees. Be careful to read any small print in the agreement before singing it. Additional payments may include:

  • Application fee for filling out an application form. We offer it absolutely free as do most reliable lending companies. So, make sure you don’t apply with a fee-charging payday broker.
  • Verification fee (database verification fee) – sometimes charged for verifying your information in a database.
  • Administration fee – paid for administrative work, very rare.
  • Transmission fee – a few dollars to get your funds sent to you very quickly, in a couple of minutes.
  • Extension and Rollover fee – in case you’ve defaulted a loan and been given an extension or rollover to pay it back later.
  • Late payment fee – if you repay the loan late. But mostly if you let the lender know you are going to be late, they don’t charge this money.

HOW TO SECURE A CHEAP PAYDAY LOAN?

A cheap Payday loan is the one that charges lower rates and fees than the other lenders and even less than a state’s upper level limit. For example, South Dakota caps short term loans to 36% APR, but there may be some lenders charging 34%, 30%, which makes them competitive on one hand and cheap on the other.

In some states, short term cash advances are forbidden. In this case, you have other options. For more details, read the article “Can I Take a Short-term Loan if it’s Not Legal in my State?

Looking for the cheapest Payday loan? Follow this advice:

  • Use comparing services, like COMPACOM, which can give you all the necessary information about the most reliable and suitable lenders and their offers on one website to help you find the best one
  • Use online calculators to calculate how much exactly the loan will cost
  • Pay attention to the APR, MPR, state regulations and the lender’s conditions
  • Read attentively for all the fees included in the lending agreement;
  • Make sure to pay off the loan on time to avoid additional late payments, or NSF, or rollover fees.
  • Be careful, responsible, and attentive, and you’ll be able to manage all your financial problems without getting new ones.

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