Payday loans are a financial product that hundreds of thousands of people use and rely on. However, payday loans, also known as cash advance loans, have some of the highest interest rates of all loans. Low interest payday loans can be a great way to get the money you need in your bank account without burying yourself in debt.
In the payday loan industry, “APR,” or annual percentage rate, and “interest rate” are two terms that are used to inform the borrower how much they can expect to pay for their loan. Both APR and interest rate are expressed as a percentage. These two terms may seem similar, but they have slight differences that can affect how much you pay for your loan. Payday loan lenders might use one term over the other to disguise how much you are paying for the loan. Let’s take a look at interest rate and APR so you can be properly informed when it comes to your loan.
Borrowing money is not free. Lending money is a business, and as such, lenders want to make money when they let borrowers take out debt. The way they do this is by charging interest on the money you borrow. If you borrow $10,000, you will be charged interest on that $10,000. Depending on your loan amount and your loan terms, you could be making interest payments weekly, monthly, quarterly, or yearly. More often than not, you are making a monthly payment. However, a small loan has different terms. With smaller personal loans like payday loans, you could be paying your principal and your interest within just a few weeks.
Your interest rate varies depending on the type of debt you are getting and your credit score, among other things. A loan like a mortgage is paid back over a very long period, so your interest rate will be relatively low. Larger personal loans will also tend to have lower interest rates as well, compared to payday loans.
The higher your credit score is, the lower your interest rate will be compared to a loan for someone who has a poor score. Because people with lower credit scores, or bad credit history, most often access payday loans, their interest rates tend to be higher. Likewise, payday loans are often paid back exceptionally quickly, so your interest is usually paid in one or two relatively large payments. The combination of low credit scores and short repayment periods is two of the main reasons why payday loans have high-interest rates.
APR is often interchangeably used with interest rate. Despite their similarities, they are not the same thing. By definition, APR is the “annualized percentage rate” of your loan. If one loan’s APR is higher than another loan and they have the same repayment terms, you will pay more over the debt’s lifetime with the higher APR. The main difference of APR is that it factors in the many additional fees and other charges that come with loans. Because of this, APR is almost always more expensive than the interest rate, but it is more accurate than an interest rate alone.
Because of the accuracy of APRs, APR is the best way to compare one loan from another. While the Truth in Lending Act mandates that all consumer debt lenders provide the APR alongside the interest rate, some lenders still might try to fool borrowers. A lender could show an interest rate that is low and may attract customers but may have an APR that is humongous because of the many fees. When shopping for a low interest payday loan, make sure to compare the APRs too, not just the interest rate.
A low-interest payday loan is just what it sounds like; it is payday lending where you pay less in interest. A low interest payday loan would be a payday loan that is not charging you huge amounts of interest to borrow from the lender. However, this does not mean that your debt’s entire cost will be cheaper than some other loan with a higher interest rate. Again, while a low interest on a payday loan may be attractive, the APR is a better figure to look out. One lender may offer an interest rate that is much lower than another payday lender’s interest rate, but it may have a higher APR, which would make the loan more expensive.
While a low-interest payday loan sounds like something great, it is not as great as it might seem to be. While some online lenders offer lower interest rates to aid their customers (like Possible), a low interest payday loan is usually not what you think it is. Let’s investigate if there really is such a thing as a low interest payday loan so we can set the record straight.
Again, payday loans have some of the highest interest rates for any loans. This is mostly due to the repayment terms of payday loans and the borrowers’ loans. This is something that is not likely something that is going to change in the near future. If you have bad credit and are looking to get a cash advance with a low-interest payday loan, only a few lenders may offer low interest payday loans that are right for you.
With a payday loan, interest rates are somewhat challenging to interpret. If you have $500 in credit card debt that is to be repaid on your next paycheck and your interest rate is 15%, you will end up paying $75 in interest. This might not sound too bad, right? Well, there is a little more to this story than meets the eye. A 15% interest rate paid over one payment versus an interest rate that is paid over a year are completely different things. Remember how we mentioned that APR is a more effective way to compare the cost of loans? Well, this is where that comes in. A 15% interest rate on a loan that needs to be repaid within a week can translate to around a 390% APR.
Unlike most lenders, Possible does not require you to pay your loan back in one week. Most of Possible’s loans can be repaid over 8 weeks, making our APR be about 150% for a $200 loan, compared to other lenders whose APR can be around 390%-600%.
It is important to remember why payday loans have interest rates that translate to high APRs. Because of the many subprime lenders that borrow from payday lenders, many payday borrowers default on their loans, losing the lenders a lot of money. A payday loan is considered a short term, unsecured loan because it does not require any collateral to secure it. In reality, around 1 in 4 payday borrowers may default on their loan. Many lenders are forced to charge interest rates that may translate to high APRs to make this money back. This, paired with very short repayment periods, can cause APRs to skyrocket.
Further, a lender might offer you, the borrower, a low-interest rate but will have many additional costs that are associated with the loan. Recall that any additional charges and fees are not factored into your interest rate but are factored into the APR instead. This means that they can offer you an attractively low-interest rate but bury you in fees. Your interest rate will seem nice, but your APR will be in the high hundreds. Yikes!
In conclusion, a low-interest payday loan exists. Some lenders will offer you a lower interest rate on their payday loan. This can make your loan cheaper than one from another lender. However, payday loans have high APRs despite their interest rates. This means that a lender might try to attract you with a payday loan with a low-interest rate so that you get their loan. However, even if you get a low-interest rate, you still may pay massive amounts in fees, making your debt expensive.
Let’s dissect low-interest payday loans so you can know exactly what goes into them and what you are paying for!
To reiterate, the interest rate for payday loans can translate to a high APR because of a payday loan’s properties. The interest rate is also not the only cost of the loan, so it is essential to look at the APR so you can see the whole picture. One lender may offer an interest rate that is low but has high additional costs. A different lender may offer an average or even high-interest rate. Despite having a lower interest rate, the low interest rate can have the same APR or have even a higher APR than the higher one due to the additional fees.
Just like many other things in the world, something can cost more than it is advertised for. Payday loans are no different. A lender might try to rope a customer into getting one of their loans by advertising that it is very cheap short term loan or that the interest rate is really low. However, if this is the case, there is a chance that there are certain fees that you can expect which could make your debt slightly expensive.
The types of fees and the costs of these fees vary from lender to lender. According to consumerfinance.gov, fees for your payday loan can vary somewhere between $10 and $30 for each $100 you borrow. There are some fees that you may not be able to avoid regardless of the situation. Some lenders may charge you an upfront fee to even get the loan. Other fees are avoidable but are expensive if you can’t avoid them. Many lenders charge late fees if you fail to repay their debt back in time. These can actually end up making your loan very expensive. Likewise, if you need to rollover your debt you can expect to have an additional fee.
Interest rates are not the only things that affect the cost of your loan. While interest rates can be small, exorbitant fees can make your loan expensive. Make sure you are aware of any additional fees that your lender might charge you before you get a loan with that lender.
If you are looking for a small personal loan without paying excessive interest rates or fees, look no further. At Possible, we understand that the payday loan industry is riddled with predatory lenders. We have seen time and time again that payday loan borrowers get unfair loans. When they inevitably cannot pay back these difficult loans, they take out more payday loans to pay off their current ones, and they fall into a payday loan trap. We want to combat this directly.
At Possible, we want to create value for our customers, not milk every cent from them as we push them further into debt. As such, we offer loans with competitive APRs compared to the rest of the industry. Instead of forcing you to pay back your payday loan in a week or two, we offer installment loans. This means that each week, you will make payments on our loans. If you are struggling to make your payment, we allow you to extend your payment up to 29 days, right within our app. We do not want to see you fail like other lenders. We want to make your repayment process as easy as possible so you can get the money you need and not be worse off because of it.
Possible is so much more than a lender that offers helpful loans with reasonable repayment periods. We understand that many of our customers have poor credit scores due to poor credit history. Because of this, we try our best to make our loans accessible to those with low credit scores. We do not stop there, though. Unlike most other payday loan lenders, we report your successful payments to the credit bureaus. That means that if you pay back our loan, your credit score will go up. Even if you don’t need a loan, our credit builder loans can boost your score.
At Possible, we are fighting for financial fairness in an industry of unfairness, as well as simultaneously building our customers up. Consider getting a loan with us. Download our app and get started!