Much has been said and written about payday loans, but none so compelling and thought-inducing as the notion that this short term cash alternative is expensive beyond reason. A news piece on Financial Times has once again impelled a discourse on the obvious advantages combined with the perceived ‘hidden’ evil of a payday cash loan. Well, the calculations are quite conclusive in themselves, albeit critics say otherwise. An interest rate of 25 pounds for a 100-pound loan (a total repayment amount of 125 pounds), if you borrow for a period of 30 days, sounds reasonable enough. The APR extrapolation, however, can be misleading, we agree.

Publicised rates of 2000% and above can often obscure the fact that a payday loan is a ’short term’ loan, designed only for a short period, and thereby negating the significance of APR’s. Unless, of course, a customer decides to keep extending his/her loan forever! Most lenders, with their policy of responsible lending, do not encourage this and therefore, a situation of this sort is purely hypothetical. A debt spiral can be created anyway, whether it is through unreasonable, strangulating overdraft charges and collection fees levied by banks or through the baffling rotating interest rate charged on a credit card advance. In comparison, it is clear that a payday loan isn’t as expensive as commonly perceived.

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Tags: Payday Loan APR, Short-term Loans

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This entry was posted on Thursday, May 28th, 2009 at 7:34 am and is filed under Lending stream, Payday Loans, Payday News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.