Payday loans are a type of loan in which you can borrow money and repay it the next payday. A payday loan is an unsecured loan, for which you can be approved quickly but at a huge interest rate (should be illegal). The reason for the higher rates is the risk taken by the payday lenders.
If you are in debt and work or live an area where payday loan establishments are accessible to you, take a good look at them and know that if you do business with a payday lender at the exorbitant rates of payday loans understand that it will be a bad financial decision compounded on bad past financial decisions that lead you to considering borrowing from a payday loan lender in the first place.
Here is an explanation of how interest rates are calculated:
- Determine how much you need to borrow then find out the finance charge amount and the loan term. Once you have the amount figured
- Divide the finance charge amount by the loan amount. For example, if you borrow $100 and the total amount of finance change is $10, just divide the $10 with $100 and you will get 0.1
- Multiply the 0.1 by 365 (the number of days a year), you will get 36.5 or if the loan is payable in 10 days then just divide 10 by 365 and you will get 3.65.
- The number you get from step 3 must be multiplied by 100 for you to get the annual percentage rate a.k.a APR that you will need to pay.
I have placed a payday loan calculator below.
Just plug in the numbers and you will see how the title of this blog applies. Let me explain: if you were to keep renewing the example loan from above over and over again because of need your APR would be 365%. Compare that to a credit card cash advance or just borrowing from a friend at a double digit versus triple digit percent. Its like being robbed!
At PotentialMillionaire.net we understand that payday loans are legal and a source of funding. However, we also know that they are very dangerous for your financial health. We only ask that you consider alternate routes of financing if possible.
Felix A. Montelara