Payday Loans and Cash Advances: APRs Explained

Payday Loans and Cash Advances in OklahomaMany people become nervous about payday loans because of the high APRs attached to them. While the numbers can be daunting, they do not necessarily mean that the borrower will experience financial harm. Because of that, it is important to have APRs explained in terms of how they are used and calculated with payday loans and cash advances.
What Is APR?

The APR is the annual percentage rate charged for borrowing, and is expressed as a single percentage that indicates the yearly cost of a loan. The number also includes any additional costs or fees incurred with the transaction.

Because of the Truth in Lending Act (TILA) passed in 1968, lenders of all kinds, like are required to disclose the APRs of their loans. The point of this is to give consumers the chance to better compare the cost differences between various financial options. The TILA also prevents consumers from becoming victim to misleading practices and being charged hidden fees that can keep them in debt. Additionally, the TILA helps protect free market competition by allowing consumers to choose the financial option best suited for their needs through comparison shopping. It also strengthens the competition between companies and protects efficient and ethical lenders.
ow Does the APR Affect Payday Loans?

The APRs of payday loans and cash advances are commonly seen as being excessively high when compared to other types of loans, such as credit card loans or bank loans.

Because the loans are meant to be taken out on a short-term basis (typically only two weeks), the APR for a loan taken out for a year reaches into the hundreds. According to the Consumer Federation of America, an APR of 400% is average. Depending on the lender, the APR can go up to as high as 780% or more.

How to Calculate the APR of a Loan in Oklahoma

Knowing how to calculate the APR is essential when comparing different loans. To find it, you need to multiply the lender’s two-week fee by 26 since this is the number of two-week segments per year. For example, if your lender charges you $15 for a $100 loan for a two-week period, then simply multiple 15 by 26, which will equal 390. The 390 then equals to a 390% APR for the loan. Even if you borrow a different amount, always be sure to calculate the fee per $100.

The Real Cost for Short-term Loans and Longterm Loans

Since you may be paying between $15 to $30 on average for every $100 you borrow, it is important to determine the real cost for taking a loan out. For example, if you have a loan of $500 with an APR of 390%, then you will need to pay $575 at the end of the two-week term. While this may be manageable for the first two-week period, if you have a longer term, the fees will keep building. If you have to extend the loan beyond the original two-week period, you will not only keep building the fees, but also have to pay a specific fee just to rollover the loan.

If it is confusing for you, there are payday loan calculators online that will help you determine the actual cost of your loan. However, knowing how to calculate your own costs will only empower you as a consumer.

As you can see, the APRs for payday loans and cash advances in Oklahoma are really not as scary as they first appear. As long as you understand how to calculate and manage the costs, such short-term loans can prove to be beneficial when you need immediate financial relief.…