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What Is the Interest Charged on a Payday Loan?

Article by Vincent Rogers

Payday loans are a short term financial solution for anyone needing emergency funds. This could be for a repair job on your house or car; it could be to pay emergency utility bills; it could be for anything where it would be more expensive not to seek a payday loan.

Now, because payday loans are a short term financial solution, they are meant to be paid back on your next pay check. Seeing as you can apply for funds between £50 – £1500 (varying on lender), you are expected to be able to pay back the money you borrow quite soon.

For payday loan companies to cover themselves, the interest rates are usually quite high. Provided that you meet the payday loans lending criteria, then you could have the money into your account with an hour in some cases. The lending criteria usually means being over 18, having a job that pays at least £500 a month, having a bank account and having a good credit rating.

As long as you meet these requirements, and thus are able to pay back the money on your next pay check, then lenders will be confident they can trust you and will lend you the money. This is what makes pay day loans different from loans you can get from a bank. Loans from the bank are very specific with who they can or can’t lend to and can lend money over a long period of time. As a result they have a low APR or Annual Percentage Rate attached to it, for example it could be around 8.9%.

With payday loans the APR that is applied is a lot higher, on average it’s around 2000%. The reason these loans have a larger interest rate attached to them is because they should only be used as a short term financial solution. If you can’t request the period you want your loan for (which usually will only be up to one month, but can up to 39 or 40 days depending on the lender), then you will usually only be allowed to borrow the money until your next pay check.

What this means in actually monetary terms is that if you borrow £100 for one month, there is a very good chance that you will end up paying approximately £135 pounds back. The longer you borrow the money for, the more you will pay.

If you are looking to repay your loan quicker, then it’s a good idea to check with the lender. Most payday loan companies calculate the interest paid based upon the repayment date you have given, and not on a daily basis. Also you could incur extra early repayment charges, but do check with your lender to establish if they can and the procedures involved.

The high interest rates on these types of loans have often seen some negative press, but it’s in the lenders interest (pardon the pun) to charge high rates, as these types of loans can be borrowed by most working people. If you need a short term financial situation, then this is a great solution.

About the Author

Vincent Rogers is a freelance writer who writes for a number of UK businesses. For payday loans, he recommends Earlypayday.co.uk

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