This content is from Clear And Fair's Blog: Understanding APR On Payday Loans You can read this in full there!
APR stands for annual percentage rate and helps you to understand how much a loan would cost over the course of a year. However, because payday loans are a form of short term loan that’s usually paid back in 35 days or less (depending on the lender), APR becomes more complicated. Read our guide on understanding APR on payday loans so you’re fully equipped to find the best price and understand your loan.
Payday Loans and APR
If you’ve looked at payday loans, you might have already noticed that the APR seems particularly high in comparison to other loans that run over a longer period. Understanding both payday loans and how APR is calculated will help you understand why this is and how it should influence your decision when choosing a payday loan.
What is A Payday Loan?
A payday loan is a form of small, short term loan that’s designed to help you financially when unexpected costs arise before your next payday. They are for people who know that they’ll be able to pay back the money after they are next paid, but need to cover an unforeseen cost for which they didn’t budget.
Because of the nature of payday loans, you’ll borrow money for a period between 1-35 days (up to around a month), making them one of the shortest forms of loans.
What is APR?
APR stands for annual percentage rate. You’ll see it represented as a percentage which calculates the yearly amount that you’ll pay for a loan. It includes everything: both the interest on the loan and any other fees you have to pay.
The key thing to remember about APR is that it calculates the cost of a loan over a year. When a loan is longer than a year, the total cost is added up and divided to give you an average for each year. When a loan is shorter than a year, the cost is multiplied to represent what it would hypothetically be if it was a loan spread over a year.
