If you have ever applied for payday loans, then you know the rates of interest are slightly higher than what the banks may charge you for a secured loan. All unsecured short term loans have higher rates of interest when compared to secured loans. The range of these rates can be substantial. You may find some lenders offering you an interest of 36% per month and there are some that would state their rate of interest as 400% APR. You may be fully aware of what these rates imply and how they work or you may need some clarity. In this guide, we shall talk about the various ways rates of interest are levied on your payday loans, thereby helping you to choose the best unsecured short term loans through Flex Repay in UK.
There are two ways rates of interest can be mentioned in a quote. One is the monthly rate and the other is the annual rate. APR is an annual percentage rate. When a lender states that their rate of interest is 400% APR, it means their monthly interest rate is 33.33%. If you take the above example, then 36% per month is obviously higher than the 400% APR, which is specifically 33% per month. You may be slightly surprised when two such dramatically different rates are quoted to you. The first focus would be on 36% but it is actually higher so don’t be too astonished with rates when they are presented as APR. You need to break down what the rate would actually be in your case given the repayment term you are applying for.
Many payday loans have a repayment term of thirty days. Borrowers are required to repay the entire loan along with interest accrued in a month. This means that the interest calculated on your payday loans will be only for a month. It does not matter if the lender quotes a monthly rate or an annual rate, the interest to be applied to your loan would be as per the monthly rate. Even if you have a repayment period of say ninety days or a hundred and eighty days, you would be paying a monthly rate of interest. You may use the APR and then divide the interest by half if you have six months to repay. There are different ways to arriving at the same figure. You should always take the least unit or denominator in every scenario. Do not presume annual rates being applied to your payday loans when you are borrower with a repayment term of a month or up to six months. Even if there are renewals of unsecured short term loans and you end up repaying the loan in up to nine months, you would pay interest accrued over the nine months and any additional charges for renewing the term. The whole APR will not apply.
The tricky aspect of how interest works is not the rate, whether it is advertised as monthly or annually. How subsequent interests are calculated will be more important. This does not apply to anyone opting for payday loans through Flex Repay in UK with a repayment term of one month. There is only one interest calculated for a month. Those who have several months to repay their short term loans must find out if the interest is calculated on the balance or the whole loan amount. It may be simple interest or compounded. In most cases, lenders of unsecured short term loans will charge you a flat interest for all the months you have to repay the loan amount. A loan amount of a thousand quid with a 40% rate of interest would have a monthly interest of four hundred quid. If the repayment is in a month and the entire loan amount must be paid along with the interest, then you repay a thousand and four hundred quid. If the repayment term is two months, then you pay a thousand and eight hundred quid. This is how it goes on if you opt for a longer repayment term. Lenders of unsecured short term loans do not deduct the principal paid every month to apply the interest for the immediate next month.