APR on Online Cash Advances
Posted on Tuesday, August 17th, 2010 at 3:00 pm in Helpful Payday Loan Info
One question that customers often ask is about the APR – annual percentage rate – on online cash advances. Cash advance APR depends on several factors, including the borrowed amount and the payday lender’s service fees. Fees and interest rates vary from lender to lender, so there is no standard cash advance APR. It’s not too difficult to calculate the APR on your own cash advance.
The annual percentage rate is a measure of interest charges accumulated over a year of payments to a lender or creditor and is used to compare the yearly cost of similar types of installment loans. Since cash advances are designed for shorter lending terms, APR is not an accurate measure of the cost of online cash advances. Cash advances are typically repaid in 30 days or less and rarely over several months or a full year. Still, calculating the APR on any financial service is important for smart borrowing.
Here’s how to do it: Divide the service fee by the amount borrowed. Multiply the answer by 365, the number of days in a year. Divide the new number by the number of days in the lending term and move the decimal point 2 places to the right to get the percentage. Here’s an example of the APR on a $100 cash advance with a typical $15 service fee borrowed for 14 days:
$15 / $100 = 0.15
0.15 * 365 = 54.75
54.75 / 14 = 3.91
The APR on a $100 cash advance borrowed for 14 days with a $15 service fee is 391% if paid back over a full year. If the customer repays the same cash advance in full on the due date, the only interest he incurs is the $15 service fee.
Now compare the cash advance APR with the APR on a typical $35 bank overdraft fee on $100 overdrawn for 14 days:
$35 / $100 = 0.35
0.35 * 365 = 127.75
127.75 / 14 = 9.125
That’s right, the 912.5% APR on bank overdraft fees is close to triple the cost of a $100 cash advance. The APR on credit card late fees often runs even higher.
Do the math and compare the cost of every credit service you’re considering before you borrow.
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