Being able to calculate your short term loans interest rates, or as often known the APR, can make a huge difference to the loan you take out. It even might determine if you choose to take out a loan at all. It’s a scary fact that many people take out a short term loan when it is not an emergency. Many are pretty much oblivious to how much they’re going to be paying back over the length of the loan. In this article, Payday Loans Net will help you learn how to work out loans interest rates.
Short Term Loans Interest Rates Explained
The majority of people do know that short term loans can quickly accumulate and result in repayments much, much, larger than intended. But, many still take out the loan and kid themselves that they can afford it or that it won’t be that much. Some people even continue to ‘refinance’ these loans, taking out loans with different companies to pay off the previous loan. In the end, they pay a higher APR on a larger amount. Doing this is unbelievably dangerous.
This guide is going to help you to calculate short term loans interest rates so you can be smarter about your financial choices.
Different Types of Loans Interest Rates
It’s important to note that some companies do not have fixed APRs. This means that your rate could go up at any given time. However, variable APRs are usually something you’ll see more of when using credit cards. Still, it’s something you should look out for, as some short term loan companies do not act responsibly and can be completely different.
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The APR, or ‘Annual Percentage Rate’, is the interest payable on the amount you have borrowed. It has to be laid out in terms of APR by law, even if you only plan on borrowing the money for a month or two. This gives people a standardised way to figure out the best loans interest rates and deals without it getting too confusing. You can use the given rate to compare the best deals. Direct lenders must tell you what the APR is before you sign any agreement.
The daily rates can vary depending on the term length you select. They can be anywhere from 0.36%- 0.8%. This means you could end up paying 80p per day or more for every £100 you borrow. This might not sound like that much at first glance, but when you figure out how long you have the loan for, it really begins to add up.
Your Loans Terms
The interest rate you are charged can be affected by the conditions of the loan that you choose. For example, you could pay your loan back in anything from 1-12 instalments. Some people make a payment every four weeks, while some make a payment each week/month. It can all depend on the company offering the loan, too. All of these things will affect the APR.
How to Calculate APR
Ask for your short term loans interest rate and type of interest you will be charged. Ensure you are clear on the amount of the loan. Simple and compound interest are two different types of interest.
Multiply the interest rate by the amount of the loan, and then multiply by the term in years.
You can then divide the number by 100 to find the interest charged during that time period.
You need to calculate compound interest using this formula: P(1+(r/100)^n.
Sounds complicated? Most online lenders will have a calculator to help you work out how much interest you are going to pay. All you need to do is enter how much you want to borrow and how long for.
Before you make the decision to take out a short term loan, you must be absolutely clear on what you’re paying back. You don’t need to be a mathematician to work this out. There are many loan calculators online that can work it out for you. Usually, a simple Google search will assist you. Here are some links that could also be helpful:
Loan repayment calculator: http://www.thisismoney.co.uk/money/cardsloans/article-1633405/Loan-repayment-calculator.html
More helpful information: http://www.bbc.co.uk/consumer/24746198
Do keep in mind that if you are unable to pay back the loan, but you take it out anyway, this is going to have a detrimental effect on your credit score. This can affect you in all kinds of ways in the future. From not being able to take out a loan required for a real emergency, to your ability to get a mortgage. You don’t want bailiffs knocking on your door either, and you definitely don’t want to have to go to court.
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Short Term Loans: Dos and Don’ts
- Do use a calculator online to figure out how much you’re going to be paying back if you can’t figure it out yourself.
- Don’t take out a payday loan if you don’t have a regular, steady income.
- Do tell the truth on your application, or you could run into trouble down the line.
- Don’t apply for multiple payday loans at once with different lenders. This can affect your credit score.
- Do make an effort to understand the terms used. For example, ‘p.a’ means per annum.
- Don’t continue to ‘refinance’ by taking out different short term loans to pay off previous short term loans. Your debt will quickly snowball.
Lenders must make interest rates and fees clear to consumers who wish to take out a short term loan. If the lender is vague about the interest you’re going to accumulate, or you do not understand the terms, do not take out the loan.
A lender who is vague about the loan interest is likely going to pile a substantial amount of money on top. Use the tools in this post to help figure out the short term loan interest for yourself if you’re unsure of what it will be. Bear in mind you should only ever take out a loan that you can afford. And remember to consider all other methods of getting short term finance before you take out a loan.
If you need financial advice, there are a number of services you can find to help you. There’s always a way to get out of debt, and you never need to take out more loans and get into more debt to do it.