Our goal is to process payday loan applications with no fuss and without resorting to faxing or telephone calls. The typical cost of payday loan credit is £25 for each £100 you borrow – this means that if you get a  £100 payday loan today, you will have to repay £125  on the day you pay off your credit commitments. This table shows a handful of examples:

What is APR and how is it calculates?

The Office of Fair Trading, government body regulating consumer credit advertising in the United Kingdom, shows the following formula in their compliance materials:

WHAT DO THE LETTERS AND SYMBOLS MEAN:
K is the number which identifies a particular advance of credit;
K’ is the number which identifies a particular instalment;
AK is the amount of loan K;
A’K’ is the size of instalment K’;
Σ represents the total of all the terms shown;
m is the amount of advances of credit;
m’ is the number of instalments;
tK is the interval, shown in years, between the relevant date and the
date of advance K;
tK’ is the interval, shown in years, between the relevant date and the
date of instalment K’;
i is the APR, shown as a decimal.

What is the APR of a payday loan?

It is important to point out that we are not payday loan lenders, we are payday loan intermediaries. We work with more than twenty lenders and a handful of brokers to maximise your chances of getting a payday loan. From our experience, the lenders accepting the majority of applications, charge about £1.29 for every £1 borrowed, therefore Representative 1734% APR. Representative example: Borrow £50 for 30 days. The total charge for credit is £14.75. Interest is fixed at a rate of £14.75 per £50 loan. The Total Repayable is £64.75. Why is the APR displayed in a larger font, you might ask? Well, this is yet another Office of Fair Trading regulation. Some people seem to believe that those applying for loans (including credit cards, mortgages, personal loans etc) are a bit thick or suffer from poor eyesight. OFT regulations stiputale that the Representative APR should be shown in a prominent manner, at least one-and-a-half the size of the rest of the text. Well, there you go.

This appears to be a bit expensive, isn’t it?

This depends on how you look at it – it is and it isn’t. There are a few things to remember about the APR – it makes the short term credit look a lot more expensive than it really is, and long term credit (like a 25 year term mortgage) look a lot cheaper. Here are a few funny facts about APR, interest rates and total cost of credit:

Imagine your friend lends you £20, but he asks that you buy him a pint of beer (worth £4), and then when you repay the money in a month, you offer him another pint. What is the APR on a loan like that? 12,874.6%, really, it’s that much – is your friend a loan shark?

You accidentaly go £50 into an unauthorised overdraft with your bank and it charges you a penalty of £28 a month. It will also charge £30 for the paid direct debit that made you overdrawn (this is a real life example from the newspaper story about unfair bank penalties) – what is the APR in this situation? We have to crunch some numbers here: bank authorises £50 payment, asks for £28 a month plus a flat fee of £30 for paying your direct debit. The APR is – are you sitting? – 1,238,155,665.6% – UNREAL, ISN’T IT??? This is well over a billion percent APR!!! Just to remind you – a billion is a thousand million… Even the most expensive APR on a payday loan doesn’t exceed five thousand percent APR…

Another scenario – you apply for a £100,000 30 year mortgage, for simplicity’s sake let’s assume that you are offered 5% interest fixed for the entire 30 year term and you don’t need to pay any booking fees, early repayment penalty fees, redemption charges and you pay all installments on time. The APR is then simply 5%, but how much interest will you end up paying over the life of the loan? You will pay £93,255.20, this means that for every £1 you borrow, you will pay back £1.93. Hold on, the interest is just 5%? Well, that is the way it works – APR makes short term credit look really expensive, and long term credit look very cheap.

Compare this now with a payday loan – is 1,800% APR cheap or it is expensive? That depends on how you look at it – it is for you decide. You can calculate more illustrations like the ones above by searching a phrase “uk apr calculator” or “uk total interest payable calculator”.