Life is like a road journey that seems to be smooth as long as there are no financial bumps. Expenses are static and they love to catch you on the hop whereas income sources are limited. While the inflation is on the rise, it does seem like a labyrinth to keep the wolf from the door. Thanks to direct lenders who do not follow strict benchmarks to provide you with financial assistance.
Though all short-term loans are claimed to be with “Same-day transfer” and “Quick approval”, no loan processing can be as faster as quick loans in Ireland. As you put in the application, it takes hardly a few minutes to assess your repayment capacity. Once approved, you get funds directly in your account.
Quick loans trickle the fancy of a large number of people due to fastest processing, but they are notorious for unattractive interest rates, which is why known as predatory loan. The average interest rate on these loans can be up to 400% provided you reimburse the debt within the period of two weeks. More than 10 million people take out these loans and around 80% of them fail to pay off.
The problem is when you fail to keep up with your regular expenses due to dissipating a large proportion of your income toward the debt, you end up short on cash again and take out a further payday loan. As a result, you continue to pay fees on and on and eventually find yourself ruined absolutely.
How Interest Rates Are Calculated?
The typical interest rate on the payday loans in Ireland you take out will be between 15% and 20%. It depends on the lender’s policy that how much they will charge. Your credit score and repayment capacity also play the paramount role in determination of the interest rate.
Suppose you have taken out a payday loan of €500, the interest rates will vary from €75 and €100. Unless the capping of the overall interest rate of the payday loan, lenders used to charge as high rate as possible. This is the bare bones of calculation. There is more to explore.
Before you calculate the true annual percentage rate, you must know the following three things:
- The amount you borrow
- The amount you are paying as the interest on the loan (also known as finance charge)
- The length of the loan (usually 14 days)
Imagine you have borrowed €500 on which you will pay €100 as interest (a rate of €20 per €100 you borrowed).
#Step 1: Divide the total amount of interest by the amount you borrow. To calculate how much you pay on each euro.
100/500 = 0.2
It means you are paying 20-cent euro coin on the top of each euro you have borrowed from the lender.
#Step 2: Multiple the quotient by 365
0.2 x 365 = 73
#Step 3: Divide the quotient by the term of the loan
73/14 = 5.214285
This result shows that if you continue to make defaults for a full year, you will pay approximately five times more than you have borrowed. To convert this figure into APR, just move the decimal point two spaces to the right and add a percentage sign.
In the above example, the APR will be 521.43%
Why are APRs of payday loans so high?
The term of the loan plays a crucial role to determine the APR of a loan. The average duration of a payday loan is very short, around 14 days. You calculate the cost of the loan for the period of two weeks. If you make any default, the cost will be levied for further two-week period and this continues unless you settle your debt. A year has 52 weeks, which means it has 26 two-week periods. This is why the overall cost of payday loans is extremely high.
What to bear in mind while taking out these loans?
Apply for these loans only when you are certain that you will not make any default. Otherwise, you will not only have your money down the drain but also a dent on your credit report. Try to consider other loan alternatives such as instalment loans and financial assistance from friends and family.