Everyone finds themselves dealing with unforeseen financial demands. Whether its car troubles, a doctor’s bill or a speeding ticket, there are times when some extra cash loan Singapore would come in handy. For many people, a payday loan money lender from http://moneylender-singapore.net/ will help solve the problem. But what is a payday loan and why is the APR (annual percentage rate) so high?
A payday loan is money you borrow using a postdated check as collateral. After registering a bank account, you write out a check for the amount you’ll owe at a future date (generally two weeks). Then you leave that check with the business and take your money. When the loan comes due, the borrower can cash your check in order to retrieve their money. Payday loans are favored for their convenience and tendency to loan lower amounts than a bank.
That being said, payday loans often get a bad reputation for having such high APRs. This reputation is both understandable and misunderstood. As payday loans borrow such small amounts of money, for such a short period of time, the high interest rates are necessary. It isn’t like a student loan, or bridging loans where the amount is huge and the interest has a long period of time to continue paying back. The proprietor of a payday loan Singapore establishment needs to pay for their store, employees, equipment, licenses, etc. All of these things cost money.
That being said, when someone asks “What is a payday loan and why is the APR (annual percentage rate) so high?” they are also somewhat confused. An APR is an annual percentage rate. So using it to measure a personal loan with a lifespan of two weeks is a bit problematic. For example, a payday loan at five percent interest would have an APR of three-hundred-and-thirty percent. But if you borrowed a hundred dollars at five percent interest from a payday loan, you would only owe five dollars at the end of two weeks. Not four-hundred-and-thirty dollars (as you would with five percent interest compounded every two weeks for a year). So while a payday loan does in fact have a high APR, it isn’t a fair measurement of its actual interest rates.
While this isn’t to say that payday loans are necessarily cheap when people ask “What is a payday loan and why is the APR (annual percentage rate) so high?” they misunderstand the length of time a payday loan is given for and how that is affected by being measured by an APR. The loan’s APR is high because it’s not meant to borrowed that long in the first place.