What is the real cost of a payday loan?Payday Loans
A project in mind, but not the means necessary to finance it? A bank account in bad shape? The payday loan can meet your most diverse needs! But like all credit, it comes at a cost. See start-lab.net of critique.
And it is essential to properly evaluate it before signing any contract, and therefore to commit. Specializing in consumer credit between individuals, Lite Lender bank explains what to base yourself on to determine the cost of a payday loan.
How does a payday loan work?
A payday loan is a type of consumer credit. His particuliarity ? It offers a certain flexibility of use to the borrower. The latter can effectively use the amount loaned at leisure, without having to provide proof of purchase to the bank or the credit institution.
The money can be used to cover the purchase of goods (furniture, household appliances, etc.) or services (improvement work, travel, marriage, etc.). It may also allow the borrower to face a delicate financial situation, for example following unforeseen expenses (vehicle repair, health costs …).
The cost of a payday loan can vary greatly depending on the funding agency. This is why, in the first instance, the borrower has every interest in putting different establishments into competition. In the second step, it is advisable to peel well each offer and to compare them.
How to estimate the cost of a payday loan?
When receiving a loan offer, the borrower should pay attention to the APR, or annual percentage rate.
Please note: the APR, a compulsory mention
In accordance with the Lagarde law of 2010, relating to the reform of consumer credit, all credit organizations are required to include the APR on their offers, whether it is a bank or an establishment specializing in consumer credit.
The APR is expressed as a percentage of the amount borrowed. It is this famous rate that defines the total cost of the loan. Why ? Quite simply because it includes all the costs incurred by taking out a loan. For the borrower, it is therefore an excellent element of comparison.
In the APR, we find:
- application fees (opening and processing);
- the nominal interest rate (or bank interest, or debit rate);
- the cost of borrower insurance (this insurance is optional and can be taken out with a bank or third-party financing organization);
- warranty costs;
- the other fees charged for obtaining the credit (fees for opening and maintaining an account, fees for using a means of payment, fees in the event of intervention by a third party for the granting of the loan, in particular ).
To summarize, the APR represents the real rate charged by lending institutions, unlike the lending rate, which is in fact only the base rate. You have to make a difference.
Cost of a payday loan: watch out for additional costs
In addition to the APR, so-called additional costs. In banking jargon, they are called penalties. These only intervene during credit. In the end, they potentially increase the cost of the payday loan. We distinguish :
- penalties for late payment;
- prepayment penalties.
Again, the amount differs depending on the credit institution. The borrower can refer to the contract to read it. In order to avoid the penalties relating to late payment, it is better to opt for the repayment period most suited to your financial situation. Because this duration will directly define the amount of the monthly payments. The shorter it is, the higher the monthly payments, and vice versa.
Good to know: prepayment penalties are not systematic!
Some lenders do not apply a penalty for early repayment. This is the case with Lite Lender bank! With us, the borrower can make a prepayment free of charge, regardless of the amount borrowed! Thus, if his financial situation changes (winning games, donation, inheritance …), he can settle his consumer credit with confidence.