When a lender of payday installment loans lends you money, it always comes with some fees. These fees are often called service fees or interest rate fees (usually calculated as APR). Understanding the cost of a payday installment loan is important to help you make an informed decision and keep yourself aware of what lies ahead for you when you apply for such loans.
The service fee or the interest rate charged by lenders to borrowers of payday installment loans is basically the price paid for getting an unsecured loan and the risk on the part of lenders for not requiring credit checks on the borrower. Typically, a lender extends the loan to the borrower using a bank account and pay stubs. In case a borrower cannot pay back the loan in time, usually two weeks, the lender offers payment extensions called a “roll over”. When a loan is rolled over, the amount payable will be extended for a defined period of time and additional fees will be charged.
As per the federal law, all payday installment loan lenders are required to disclose the interest that they will be charging and provide a copy of the borrower’s rights. If there are questions asked from the borrower, lenders must answer all inquires to the borrower’s satisfaction. This is why most professional lenders have qualified customer support executives to cater to such queries from borrowers.
Most lenders of payday installment loans charge interest APR rates. The annual percentage rate or APR can be defined as the annual interest rate (including all additional costs) that corresponds to a specific sum of money. Also, APR is the financial relationship existing between various variables, such as the principal loan amount, the interest rate, the loan term, and the additional loan charges. The additional fees included in calculating the APR on a payday installment loan are:
· Origination charges and discount fees
· Document preparation fees
· Underwriting charges
· Pre-paid interest charges
· Loan processing charges
· The Bond fee
Generally, the calculation for the APR varies from lender to lender. The commonly-used and scientific method is the Newton-Raphson method where the annual percentage rate is treated as an independent variable with a value based on the loan amount, the duration of the loan, and additional charges. For the average consumer of payday installment loans, this mathematical method is a bit complex and can be time-consuming. So, it is more convenient, fast, simple and practically effortless for short term loan borrowers to utilize an online calculator to estimate their payday installment loan payments. This tool enables them to calculate the costs associated on the total amount of the loan offered by a payday installment loan lender compared to a standard loan. With an APR calculator, borrowers need to enter the following information:
· The principal loan amount or the actual amount of money borrowed
· The additional cost or the total finance rate
· Interest rate paid for the duration of the loan
· Number of months for borrowers to pay back the loan
Generally, the average payday installment loan carries an APR of 470%. For a $100 loan, the finance fee is usually between $15 and $30. The finance charges on a two-week loan will translate into an APR ranging from 390 to 780%. It is therefore very important for the borrower to understand the cost of the fees that his lender charges for borrowing money. Consumers should be able to find the best deals when applying for a payday installment loan with this information.