# Payday Loan Rates

How To Calculate the APR on Your Payday Loan

Shopping around for the optimal payday loan means comparing creditors and loan options.  This has been simplified with the introduction of APR or annual percentage rate, now an industry standard.  Consumers currently rely on APR to compare percentage costs on a number of different payday advance loans.  APR can be defined as either 1) the annual interest rate (incorporating all additional costs) that is paid by the borrower and which corresponds to a specific loan sum or 2) a measure of the cost of borrowing tabulated as a nominal annual interest rate.  APR is the financial relationship existing between various variables, namely the following: 1) the principal loan sum, 2) interest rate, 3) loan term, and 4) additional loan charges.  Some of the additional fees that are typically included when calculating the APR on a payday loan are:

• Origination charges and discount fees
• Document preparation fees
• Underwriting charges
• Pre-paid interest charges
• Loan processing charges
• Bond fee

The method utilized for calculating the APR will vary from lender to lender; payday cash loan providers have a lot of leeway when it comes to computing APRs.  The most commonly-used and scientific method employed in this high risk personal loan industry is the Newton-Raphson method.  It treats the annual percentage rate as an independent variable whose value is based on the value of the loan amount, the interest rate, the duration of the loan, and additional charges.  For the average consumer, this mathematical method is a bit complex and time-consuming.  Therefore, it is much more convenient, expeditious, simple and practically effortless for short term loan borrowers to utilize an online, interactive calculator to estimate their cash advance payments.  This tool will enable them to ascertain the fee amount for a payday loan offered by one short term loan company as compared to a standard loan.  Typically, an APR calculator will utilize the phraseology below and require prospective borrowers to enter the following information:

1. The principal/loan amount/amount of money borrowed/payday loan amount;
2. The extra cost/additional cost/total fee/finance rate
3. Interest rate/interest on the loan/the percentage of interest to be paid each year on the principal
4. Number of months/days/payday loan term in days/ over which customers will pay back the cash advance loan

The payday loan amount is the loan sum requested by a payday cash loan borrower before any charges are added to it.  Interest rates on payday advance loans are in essence the sum that customers are charged to obtain the loans.  A short term loan's duration or factor #4 is basically the number of days preceding the repayment date; it is calculated from the day that the borrower received the loan until the date he must repay the sum.

Individuals who are considering applying for cash advance loans and who are searching for a quick calculation of the annual percentage rate on different payday advance loans should use an online APR calculator to compare rates and lenders.  Finally, the average payday loan carries an annual percentage rate of 470.  For a \$100 loan, the finance fee is typically between \$15 and \$30.  The finance charges on a two-week loan will translate into an APR ranging from 390 to 780%.  By being savvy shoppers, consumers are guaranteed to find the best deal for their money.

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