How Payday Loan Interest Rates Are Calculated?

Payday loans are quick loans that can be obtained easily and conveniently for all those in urgent need of money. The loans are a boon to those who need a short sum of money urgently for a short period. Guaranteed payday loans No Matter What are offered by lenders that make it so convenient for loan seekers. There is no requirement for collateral nor is there a requirement for a guarantor for these loans.

Payday Loans No credit Check are very convenient for all loan seekers, irrespective of credit score. There is no credit check carried out before approving a payday loan. All these make it clear that a payday loan is the best kind of loan for those who are in urgent need of money. The loan is given on the basis of the paycheck the applicant gets from an employer.

If you are planning to get a payday loan, you need to understand more about the loan, the terms involved and the interest rate on the loan.

Payday loan basic concepts

1. What is it: A payday loan is a loan given for a short period of time on the basis of the salary of the applicant. The concept involved is that the employee would repay the loan on the next payday when he gets his salary.
2. Loan amount: Payday loans are usually given for an amount from $100 to $1000.
3. Loan tenure: The tenure or term is the duration of the loan. Payday loans are short-term loans and are given for a period of 14 days. It may be given for 31 days under some circumstances.
4. Eligibility: Anyone who has a job and earns a salary of minimum $1000 can apply for a payday loan. Usually lenders prefer that applicants should have worked in the same company for at least three months. Even unemployed can get a loan, but they may have to get it on stiffer terms.
5. Interest: Interest is the amount paid to the lender in return for lending the amount. The interest amount varies from lender to lender and is decided based on the APR.
6. APR: APR is the Annual Percentage Rate. The loan is given at this rate. This is a number that defines the percentage of interest that needs to be paid.
7. Amount due: This is the total amount to be repaid to the lender and is calculated as loan amount plus interest.

How is interest rate calculated?

The interest to be paid for the payday loan obtained depends on the interest rate. The APR is calculated as per the interest rate fixed by the lender. This can depend on various factors, including the salary of the applicant. Some states have laws that regulate the maximum APR. While fixing the APR, these laws are kept in mind. The lender would inform the applicant of the APR prior to loan approval. Applicants have the option to compare rates between lenders and decide which lender offers the best terms.

The interest rate or APR can also be calculated mathematically as follows:

Assume the amount given on loan is $500.

The lender may charge $20 for every hundred loaned. So, the interest rate is 20%.

For $500, the interest to be paid is 20/100 x 500 = $100.

The term of the loan is 14 days.

Using this data, the APR can be calculated. The procedure is:

1. Divide interest by loan amount.
2. Multiply the answer by 365 (to calculate for a year).
3. Divide this answer by the term of the loan.
4. Multiply by 100 get the APR

Let’s see how it works using the example given above.

The interest or loan charge is $100, the term is 14 days and the loan amount is $500.

1. 100/500 = 0.2
2. 0.2 x 365 = 73
3. 73/14 = 5.2413
4. 5.2413 x 100 = 524.13.

So the APR or Annual Percentage Rate in this example is 524.13%.

The APR can be calculated based on the interest paid.

The above is an example to understand how APR is calculated. The actual APR would vary from lender to lender. This is why applicants would do well to look for online platforms for lending. This helps them compare rates, so they can get the best APR.

Getting a payday loan

Having understood all about payday loans and about how interest rates are calculated, you can now easily decide if you want one. If you are looking for a payday loan, you contact a Payday Locker.This online platform connects lenders and those who want a loan. These platforms allow you to apply online and the entire process is simple and convenient. You can get the loan amount credited directly into your bank account within 24 hours.

Author’s Bio:

My name is Harold Mitchell, I’m part of the editorial team at the Payday Locker. We offer Online Payday Loans in Michigan. Payday locker is a third-party agent that helps you connect with a lender and get money instantly.