Hey Guys, here’s our 2nd National Payday University video! Enjoy!
The transcript is beneath the video if you want to read along.
What really is the APR of Payday Loans?
What is the “APR” of anything?
What does “APR” even mean?
Let’s get some facts straight.
APR does NOT stand for
Airline Peanut Reserve
Ants Proudly Reveling.
It stands for
The annual percentage rate is the interest rate for a whole year. It’s mostly used to refer to loans, and the rate that interest accrues on them over time.
APR most commonly helps describe the interest paid on things that are paid on a monthly basis that last multiple years. For instance, a car loan, or a home loan. And it’s useful. The APR provides some great perspective beyond the monthly, because you’re going to have that loan for a long time.
When you start calculating the APR on things that are much less than a year, however, you start really getting into misleading figures. Often times this makes the interest paid on a short term loan look far higher than it really is.
For example, if you get a $100 payday loan on October 2, and you get paid on October 9, On October 9th, you would pay us $130 back. And that’s it. You’re done, and you paid $30. Simple and easy, right?
But if you tried to calculate the “APR” of that transaction, you find a really high number: 1,042! But that’s because a payday loan is not a long term transaction, like a home loan.
Let’s look at another example of a short term transaction: Movie Rentals. A popular pricing model is to rent a disc for 1 dollar for one day. The next day, if the disc is not returned, a 1 dollar late fee is charged. Even if you return the disc on the third day, the annual APR for that rental was a whopping 2,607%!
But that’s a pointless statistic, because Movie Rentals are never meant to be long-term transactions.
When it comes down to it, Looking at the APR of a payday loan is not important at all. So, what IS important? The lender you’re using! Are they safe? Are they trustworthy? Picking a great payday lender can be the difference between getting kicked while you’re down, and a fantastic support when you need it most.
National Payday. Money, when you need it fast.