March 13, 2009, Newsletter Issue #48: Considering Loan Interest Rates for Payday Loans

Tip of the Week

Carefully examining loan interest rates is important when considering payday loans. This is an important consideration whether the borrower is comparing several payday loans or whether he is comparing payday loans to more traditional types of loans.

When taking out payday loans, loan interest rates are typically presented in the form of a fee which must be paid for the amount of money which is borrowed. Typically fees range from $15 to $30 for every $100 borrowed. Although these fees seem minimal when considering the relatively short repayment period, the interest may translate to an annual percentage rate in excess of 390 percent. This clearly makes this type of loan ideal for the lender because they have a return on the loan which is proportionally large, but borrowers must determine whether the need for the loan makes this type of interest rate worthwhile.

The annual interest rate associated with traditional loans is often considerably lower. However, the repayment period is also longer. To compare the two types of loans, the borrower should determine how much he will pay in interest and fees over the course of the loan to determine which option is fiscally more appealing.

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