Month: August 2020

Understanding APR

Whether you’re taking out a 30-year mortgage or whether you’re taking out a 14-day payday loan at lender near you is usually required to tell you what the Annual Percentage Rate (also known as “APR) is for the loan. The APR is one way to compare the cost of a loan, so if you are considering loans from multiple sources you can compare the different products. APR is far from perfect, but it is a useful tool when you’re considering a payday loan, car loan or a mortgage.

Why do we use APR?

Borrowing money can be confusing. Banks and payday lenders and other lenders will throw out a lot of numbers that may mean different things. The Truth in Lending Act was a federal act that, among other things, required lenders to quote the APR to someone who is considering taking out a loan. They did this, ostensibly, to reduce some of the confusion in the marketplace.

What is APR?

APR lets you look at the costs involved in a loan in terms of percentages. A $100 loan with a 10 percent APR will charge you $10 per year. Obviously, since that scenario doesn’t involve paying off any principle, it’s not exactly the best example, but you get the idea.

The limitation of APR

Unfortunately, there are limitations. Your APR may include more than just the interest on the loan. It might include things like processing fees or even mortgage insurance on a home loan. You need to look at the APR in detail so you know what is and what is not figured in for any given loan. You need to know what charges and expenses are involved in a loan. Beyond that, you need to get the big picture and look at how long you’ll have the loan to decide whether or not it’s worth it.

Calculating APR

If you need help figuring out the APR on a potential loan, ask the lender. They are required by federal law to provide you with the APR on a loan. If you want to calculate it on your own, there are a number of online services that can help you do exactly that, as well.…

Big Payday Loans Mean Big Trouble

If you’ve ever taken out a payday loan, you are probably quite familiar with the drill. You go in, let the lender know how much money you need to borrow. You write them a check, which they will cash in two weeks. If you don’t have enough in your checking account to cover the check when the two weeks is up, you wander back into the payday lender and take out another loan. In some cases, the next loan you take is even bigger, because not only do you have to cover the original loan amount, you have to pay the fees on the original loan.

Keep this pattern up and you’ll find yourself in big trouble. Those fees may not seem like much, but they add up and they add up fast.

Let’s say, for example, that you find a payday lender with relatively low rates. They might charge you $8 per $100 borrowed. Maybe you needed $225 to get your car fixed. The payday lender only gives loans in $100 amounts, so you borrow $300 and write a check for $324. You plan on taking the extra loan amount and setting it aside.

Well, of course, it doesn’t always work that way. It might be that you had another emergency crop up, or that you just decided to take that extra money and buy your girlfriend a nice dinner at that sushi place downtown.

Hope it was worth it, because now you’re hosed. Come payday, you may not have enough to cover the payday loan. Sure, you’ve got $80 that you can put toward it, but remember that the lender doesn’t loan amounts less than $100. So, you borrow $300 again, at another cost of $324.

One thing leads to another, and two weeks later you’re no better off. In fact, you decided to take in a concert, and wound up blowing $150 unplanned between your tickets and a couple of T-shirts.

Come payday, you don’t even have the $324. So, you take out a $400 loan, at a cost of $432 this time. Now you’ve paid a total of $80 in fees, in just a month and a half, and you’re no further ahead.

Avoiding this kind of payday loan mess isn’t always easy. Sometimes, it means borrowing less than you need. If your car repairs are $225, borrow $200 from the payday lender and get the other $25 from a friend or family member. Buckle down in between, so that you really can pay off your payday loan.…