Payday Loan Calculator: Understanding the Costs
You are considering taking out a payday loan but you are not sure whether or not you can afford it. You also don’t know the different fees and charges when availing for this type of credit and you want to make sure that you can make the proper payments at the exact agreed time. Indeed, the cost is an important factor that anyone should look at when applying for a payday loan. If you want to know how much you are going to pay for a certain amount of credit, using a payday calculator would do wonders.
The Loan Calculator
Nominal Interest Rates and Annual Percentage Rates (APR) are some of the terms that you might encounter when taking out a payday loan and for an ordinary person, the true meaning of these words can be downright confusing. Many online lenders, however, provide customers with a helpful interest rate and APR calculator that will help provide clarity on the matter. All you need to do is to enter the amount of loan that you wish to take out, the amount you will pay each month, and the number of months in which the loan will be due and you will get an accurate number of a number of costs you will have to bear. In general, the calculator will help you work out:
The total amount of cost you will incur in taking out the loan
The total amount of repayments you will make
You might ask what kind of formula a calculator for payday loans use and the answer would be varied depending on the lender and the type of calculator they provide to their customers. There are calculators that utilise the Newton-Raphson (Hyperlink “mathworld.wolfram.com/NewtonsMethod“) method and the like to calculate the interest rates. However, whatever method it may follow, calculators are typically easy and straight-forward to use and you would get an accurate figure of the actual cost without much help.
The Reason Behind Payday Loan Rates
Normally, people would be hesitant to take out payday loans primarily because of the cost of the fees. Taking out a £2,000 payday loan would typically charge you £700 or a 35% in interest rate – something that you just won’t see in other forms of credit. However, payday loans are short-term loans which mean you will just have to pay the interest rates once, usually in your next payday, and after that, you are relieved of any form of payment. Instalment loans, on the other hand, offer much smaller but recurring interest rates that you will have to pay every month for a year or so.
Also, if you consider the fact that payday loans are unsecured (they don’t require any form of collateral) without credit checks, all the risk rests in the lender. Thus, on the part of the lender, putting a hefty interest rate in their services would justify the huge risk that they are taking. Lastly, taking out a payday loan is so quick and easy – requirements are minimal and payouts can take less than 24 hours to accomplish, that many people are just willing to take it despite the costs.
Why Payday Loans Use Annual Rates
You might ask why the cost of payday loans are measured annually through the APR when it would only require you a month or two to pay back the interest rate? This is because payday loan lenders are legally obliged to show the APR when they advertise their loans. This simply means that the APR is not an accurate measurement in displaying the actual cost of taking out payday loans. An APR of 400%, for example, is simply misleading because there is no such thing as a payday loan that takes a year to payout. Nevertheless, the APR is only used as a standard for comparing different credit offers but not the actual figure of costs that you will bear once you take out a payday loan.
Comparing the Costs
The payday loan calculator will also allow you to compare different costs from different payday loan offers. Here are some of the things that you might want to consider when choosing a product from a payday loan lender.
Annual rates are huge but the actual cost in taking out the loan is low.
Customer service must be as quick as the application process itself.
There are no hidden fees and charges.
So before you take out a payday loan, keep in mind that you can use a calculator to measure the exact costs that you will have to bear. This way, you will know whether or not the loan is ideal for your financial situation. Affordability is an important factor that you must always consider when availing for a payday loan especially if you want to avoid suffering the possible costs of missed payments.