One of the most common charges against payday loans is their high costs. They are to be much higher than in the case of standard bank loans, thus less favorable for the customer. Is this really the case? It turns out that you can quickly and easily compare the price of loans and credits. To do this, you only need to check one indicator – APRC. What is he and how to read it?
APRC – he will tell you the truth
It is considered the most important indicator when analyzing the financial terms of loans, payday loans, loans. Under this abbreviation there is the Actual Annual Interest Rate. It speaks of the total cost of the financial liability and all the cost of the liability, such as:
- loan interest rate,
- bank / loan company margin,
- any insurance,
- handling costs,
- entry fees etc.
According to the law (anti-usury act, the so-called payday act) informs that loan and credit institutions cannot impose fees on the client that are not included in the APRC. The current Annual Interest Rate must be given for each type of financial liability. It does not matter whether the debt is incurred in a traditional bank or in a loan company.
For more information on loan costs, read this article.
How to calculate the Actual Annual Interest Rate?
It’s best to opt out of calculating the APRC yourself and take advantage of easier solutions. These include online calculators that automatically calculate this ratio based on the loan details provided. The result is obtained within a few seconds, and most importantly it is precise and the risk of calculation error is minimal.
You can also ask the institution where you want to incur debt to provide the amount of APRC. It is required to provide the APRC in the loan agreement, but often presents it already at the stage of presenting the offer.
APRC is usually given in annual and percentage terms. This is important for long-term liabilities, eg loans. In some cases, it may also happen that a numerical amount representing the Real Annual Interest Rate is given.
Low or high APRC – which is better?
It is generally accepted that the lower the APRC, the better the loan or credit offer. However, this is not always the case. First of all, it should be remembered that the amount of this indicator depends on the duration of the loan. This relationship has a significant impact on the APRC – it can be seen that the short loan period is associated with an increase in the APRC, which is not synonymous with a high cost of payday loans. That is why, if you want to compare whether a bank loan or a quick loan will be cheaper, you should always combine products with the same loan time and the same amount of money.