No.1 – Representative APR
Finance is jam-packed full of confusing terms and acronyms, and we would put the term ‘Representative APR’ right at the top of the list.
Many people nowadays are resigned to the fact that only the most expensive options are widely available. This can lead to a very common mistake relating to modern day advertising.
As we stated at the top of the article, where a loan uses the term ‘representative APR’, what they are actually saying is that only 51% of successful applicants will be given the stated interest rate.
Martin Lewis of MoneySavingExpert.com provides a great example.
No. 2 – Payday Borrowing Options can Cost More in a Single Month than Credit Cards do in a Year!
The majority of people believe that payday lenders charge interest on the balance that has been borrowed. However this is not always the case.
Many payday lenders typically choose to charge a fee instead of an interest rate.
For example, if you borrowed £100 for a month, a standard fee for this would be approximately £30, resulting in the full payment equalling £130.
When you compare this figure to a standard credit card charging 19% APR, assuming that you did not miss any repayments, you would only be charged £20 on a £100 balance for a whole year!!
No. 3 – Being a ‘Good’ Borrower can Actually be a ‘Bad’ Thing!
We all know that failing to make repayments on time can lead to trouble. Surely though, making sure you repay on time could not possibly lead to further trouble, could it?
Making timely repayments in full can still lead to potential issues. Because your payday lender will know that you are a good customer who repays on time, it will certainly be aware that it has made money from you. This inevitably leads to the next step – if it lends you more money, you are likely to repay again making them even more money!
Borrowing a small amount to see you through to the next payday is one thing. Borrowing significantly more is something else altogether. The larger the amount borrowed, the greater the chance of failure to repay and the greater the costs will be.
To explore payday loans in greater depth, take a moment to click on the following link which will take you to the Citizens Advice Bureau guide to payday loans –