How is the Interest Rate on a Payday Loan Calculated

How is the interest rate on a payday loan calculated

How is the Interest Rate on a Payday Loan Calculated

Knowing how to calculate the interest rate on a payday loan offer goes a long way in helping you know exactly how to schedule your monthly payments and better decide the right kind of online payday loan direct lender that best suits your funding purpose.


Payday loan interest rates vary, but mainly amongst lenders. These rates also depend on the total amount of money you are requesting in payday funding and the entire terms of your loan offer.


But still, these fees are regulated by an online payday loan governing body that ensures that borrowers are never victimized and caught prey by some greedy lenders who would rather accumulate personal gains for themselves than help an individual like them to deal with their current financial predicament.


Thus, the two agencies that are kept in charge of creating and enforcing online payday loan laws and regulations that in turn help to guarantee the best interest of users from unfair lending practices include:


  • The Consumer Financial Protection Bureau
  • The Federal Trade Commission (FTC)


But still, online payday loan laws and regulations aren’t always consistent, so it’s best to stay updated at all times on these rules and regulations. To get better insights on the various payday loan laws and regulations that relate to your current state of residence in the United States, kindly visit the below-referenced sites:


  • org
  • org

Also, we strongly advise users to contact their respective instant direct payday loan lender for any query related to their current funding offer.


On approval of your online payday loan request, you simply agree to all the terms of your corresponding loan offer, and this includes coming to terms with the payment of all accrued interest rates and fees on the offer.


Thus, we strongly advise that you pay special attention to all relating payments and non-payment fees to know exactly if you’d be able to cope with your current loan offer and direct payday lender.


How Much Interest Does a Payday Loan Cost?


In the process of applying for an online payday loan, your designated direct payday lender will disclose all the necessary details that relate to your loan offer fees, APR, as well as all renewal options that concern the entire payday loan term. We, therefore, advise that you carefully go through the agreement to see if it’s one that you are comfortable with, especially as it relates to your current financial condition.


The cost of applying for an online payday loan offer is usually conveyed as an annual percentage rate (APR), a cumulative sum of all interest rates and fees related to the current loan offer.


That being said, the following factors are to be considered when trying to consider the best kind of payday loan offer to go for – these are the major contributing factors that determine your payday loan interest rate and total cost:


  • Interest rates
  • APR


Payday loan rates and fees are not always constant; they tend to vary based on the kind of direct payday loan lender you are dealing with, your current financial status, and the terms of the payday loan offer.


How Much Interest Does a Payday Loan Cost


Payday Loan Interest Rates


There’s no solid way to determine exactly how much your online payday rate should cost, but rather, this value usually falls between 15% to 20% of your initial direct loan amount. But still, this value depends on the choice of the lender that you’d be working with.


Thus, if you are to take a $200 loan amount to be paid back within a 30 days interval, and at a 15% interest rate, your payday loan interest will look something like this:


Amount of interest on payday loan = 15% x 200 = $30;

Payday loan interest cost = $30;

The total amount on loan settlement = Payday Loan Amount + Interest Cost;

= $200 + $30 = $230;


Thus, you’d be expected to payday back a total of $230 in your loan settlement at the end of your loan term.


Due to the fact that online payday loans are considered unsecured, there’s usually a high risk placed on the part of lenders as they are not so confident that the person they are lending money to is going to pay back the funds when due. As a result of this, if your payday loan request doesn’t seem considerable to your payday lender, they may choose to increase their interest rate on the offer to help compensate for the high risk involved in giving out the offer.


Payday loan rates tend to reduce with time as you increase the level of trust with your lender. That is, the more you can show an online direct payday lender of paying back a loan offer, even before it is due, you increase the possibility of accruing lower interest rates on your online payday loan offer. This is because the risk involved now is pretty low.


Online payday loan interest rates also tend to increase with every late payment or settlement on your loan offer.


Annual Percentage Rate (APR)


While online payday loan rates may vary, lenders may charge up to 400% in APR fees.


Every online instant payday loan funding offer has its specific annual percentage rate (APR) that usually accounts for the uniformity among different payday loan sources. Payday loan APRs go a long way to ensuring an easy comparison in payday loan rates and makes it really easy for you to decide on the specific payday loan offer to go for.


The Annual Percentage Interest Rate (APR) on a short-term payday loan offer is calculated by dividing the total interest accrued on the loan by the original loan amount and multiplying the result by a year-long period (365 days). The calculated result is then divided by the total length of days agreed to settle on the loan offer. The final result is multiplied by 100 to give you the exact APR cost on that loan offer.

Mathematically, the APR calculations on a $200 loan that is to be paid back within a 30 days interval will look something like this:


Amount of interest on loan = 15% x 200 = $30

Thus, payday loan interest = $30;

Amount of interest/loan amount = 30 ÷ 200 = 0.15;

(Amount of interest/loan amount) x 365 = 54.75;

((Amount of interest/loan amount) x 365) ÷repayment date = 54.75 ÷ 30 = 1.825

(((Amount of interest/loan amount) x 365) ÷repayment date) x 100 =182.5%


It’s pretty common to have higher APR costs in online payday loans than in other traditional loans offered by banks and other lending institutions. This is usually associated with the high risks involved in this kind of funding.


Still, one important thing to note is that online payday loan funding options are best to help you survive through a few days or weeks’ worths of financial setback(s) rather than several years of it.


Share this post