A Bad Measure of the Attractiveness of Payday Loans Portal Loan
The belief that if we want to determine which loan or loan offer is the most favorable for us, you should check the level of APY. Although many people do not really know what is behind this shortcut, they use this method. However, by browsing the websites of loan companies, you can get dizzy. In some cases this parameter reaches the value of even several thousand percent. Then we start to wonder whether the incurring commitment will not contribute to the growth of our debt. Therefore, it is worth knowing why there may be such significant differences in the APRC.
APY – what is it?
Let’s start with developing the abbreviation RRSO, which is the actual annual interest rate . It is a percentage indicator, which, besides the nominal interest rate on the loan (4 times the lombard rate of the National Bank of Poland), comprises additional non-interest costs. According to the Act on consumer credit, these are costs related to a given obligation, i.e. commissions, administrative costs, insurance, costs of additional services, e.g. loan delivery to the home, value of money in time, as well as a fee related to the consideration of the application.
In offers usually the main part of the advertisement is the Annual Interest Rate. Described as “low”, it attracts our attention, especially if we need money quickly and we do not have time to go into details. The APRC is in turn written in a small print, usually somewhere at the end of the offer. We rarely read such information at all and may turn out to be very important to us. Let’s explain what exactly is the Actual Annual Interest Rate.
APRC badly for short periods
Simply put, the APRC answers the question of how much it can cost to incur a liability for a given amount for a period of 12 months. The less time we have to pay, the higher the value of the indicator. In the case of companies providing payday loans, we usually have 30 days to repay the obligation. Such a much shorter period than 365 days a year, hence the Actual Annual Interest Rate has even cosmic values. In addition, if the APY is 2000 percent. it does not mean that we will give back the amount 2,000 times higher than we borrowed. APY, as we mentioned, indicates the annual interest rate. Therefore, in the case of short-term loans, it is not a good indicator. When comparing individual offers, the repayment period and terms of the loan would have to be identical, and this is never the case.
Installment loans and the APRC indicator
Is the RRSO indicator more useful to us when we are interested in installment loans? Aasa Polska gives us up to PLN 10,000 for a maximum period of 24 months. We can ask ourselves if this is a better offer than a lender’s proposal, which only gives us a commitment for a year? As it turns out, APY in the case of a longer repayment date will be lower, but it does not mean that we will incur lower costs. Fees can be identical, and suggesting that one of the products is cheaper, because it allows you to spread the repayment for a longer period, does not have to be true. However, it is worth knowing how to calculate APY because we have no reason not to trust this indicator. We just need to understand that it does not only specify the sum of costs, but also refers to the time we have to pay them.
Calculate APY according to the formula
A special formula is used to calculate APY. An important factor affecting the value of this parameter is the change in the value of money over time. It means how much money we would earn if we were to pay a given amount of the benefit on an interest-bearing deposit with the same amount as the loan. Hardly anyone can use this pattern, but many people suggest it as well as opinion-forming media. Everything breaks into him about the yearly relationship, which has nothing to do with online loans. In them, the amount to be repaid is important in view of the loan, not the whole year.
Fortunately, we do not have to calculate the APRC ourselves. Providing the actual value of the Annual Interest Rate is the responsibility of every financial institution that offers products to support our budget. However, if we would like to see for ourselves how the Real Annual Interest Rate is shaped, we can use the calculators available on many websites. By completing individual fields, we will know the value of the APR and confront this information with the data we have obtained from the lender.
What has the amendment to the anti-usury law changed?
Mostly, there was a lot of bad news about borrowing costs. Borrowers had problems with high fees and, although they ruined their budget many times, they could not give up outside financial aid. The government decided to amend the rules of the anti-usury law and on March 11, 2016, its new project came into force. The main decision contained therein was to reduce the cost of loans and calculate them on the basis of one common formula. From that day, the costs can not be more than 25 percent. loans plus 30 percent this amount for the whole year. Most importantly, all fees must be included in them, and therefore not only commission, but also preparation fee or insurance. As for the amount of interest, nothing changes. They can amount to four times the NBP lombard rate, and therefore 10 percent.
The most important change – refinancing in exchange for rolling
Due to the interference in costs that the lenders have overlooked to huge amounts, some of the services they offer have ceased to be viable. In particular, we are talking about rolling a loan – until now the borrower could have moved the repayment period practically indefinitely. This significantly increased the profits of the loan company, which charged high fees for such a possibility. The anti-usury law has introduced cost limits, which is why loan companies can no longer impose high fees for extending the loan period. It would be unprofitable for them to continue offering this service, therefore they offer refinancing to the clients. Their debt is taken over by another financial institution that regulates our commitment. We sign a new contract, and hence – we have more time to settle payments. It is worth to opt for such a solution if we do not have the option to pay off the amount due. Otherwise, the lender will impose penalty interest on us and send a warning.
Rates and loans in installments – what indicators should be taken into account?
APRC, and therefore commission and interest rate, then not the only important issues. We need to check the lender much more accurately, both in terms of providing services in accordance with the law, as well as the convenience of the offer. We can check rankings, suggest opinions, but above all we should be sure that the lender puts the client’s needs first.