You might have heard about a payday loan even if you have not used or need an instant payday loan. However, a payday loan is a short-term loan that offers you immediate funds at a high-interest rate. Some statistics show that the fees or interest rates that come with this loan vary from one state to the other and other factors. Despite the difference in rates or fees, there is a range whereby these interest rates fall. Now, discuss the interest rates on a payday loan in 2022 and other useful information to build awareness about the interest rate and the services so that you can utilize the service better later.
Payday Loan Interest Rates in 2022
Payday loans in 2022 have become high-risk loans and predatory lending. On average, the interest rate for a payday loan can range from 391% to 600%. With this loan, the interest rate can remain the same if you pay on time. However, if you cannot pay the loan on time, the interest rate can rise, making the amount you will pay more.
Note that the interest rate fluctuates when you cannot pay the loan. When you cannot pay the loan in time, you will have another debt that would be even higher than the emergency bill that you settled with the payday loan. Since the rate can add up and have costing fees, you must pay on time to avoid fluctuation. So, what are the examples of payday interest rates?
An Example of a Payday Loan Interest Rate
As you already know, the pay loan interest rate varies from one lender to another and other factors. Generally, the interest range is between 391% to 600% on average. However, these interest rates can be categorized based on the loan category or source.
Considering the other types of loans, you will find that this is the type with the highest interest rates. Due to high-interest rates, that is why, in some states, you cannot get this kind of loan in some states.
Let’s look at an example. In some states, they have set the interest rate at 36% for a loan of $300. Others, you can get an interest rate of 38.5%. But these few states offer these loans at a low-interest rate. However, in other states, a loan of $300 can have a high-interest rate of 662%.
How is the Payday Loan Calculated?
To understand what the numbers in the above section mean, let’s explore how the 391% or any interest can be calculated. The payday loan interest is calculated by determining the annual percentage rate (APR). To calculate the annual interest rate, you will have to divide the interest amount by the amount you borrowed, multiply by 365, divide it by the number of the repayment period, and finally multiply by 100.
For example, if you want to calculate the payday loan interest for $375, then it is calculated as below:
56.25 ÷ 375 = .15 x 365 = 54.75 ÷ 14 = 3.91 x 100 = 391%.
Note that the amount you will pay depends on the number of months that you will use to pay the loan. So, the longer the period, the more you will have to pay. The loan rate is higher than any other lending. For instance, if you could have used a credit card loan at its high rate, you would have paid less than you would have paid on a payday loan.
Frequently Asked Questions
Do Payday Loans Have a High-Interest Rate?
Yes, the interest rates that come with payday loans are so high. For example, a standard credit card loan may have an interest rate of 28 to 36%; however, the annual percentage rate for a payday loan may begin at a high price, such as 391%. If you cannot pay on time, the rate can even go higher.
What Kinds of Borrowers Does the Payday Loans Target?
Though everyone qualified can take a payday loan, the loan is specifically designed for the one with a bad credit score. Note that since the banks and other lenders do not give this kind of borrower, a loan like a payday loan is the perfect type for them.
What Kind of Interest Rates Does the Payday Loan Offer?
With payday loans, you can get fixed interest rates. It means the rate you would take the loan at will remain the same even if there is a fluctuation in the market. But do not forget that after the payment term elapses, you may incur an extra fee or a rise in the interest rate.
I hope the article has been informative to you and that you know the interest rate for payday loans in 2022. With the information above, you can know what you can expect if you want to take an instant payday loan or make a better decision before committing yourself to take the loan.