How can I calculate Payday Loan Costs?

Everybody knows that payday loans are a very expensive way to borrow money but most people don't know how much they really cost. The payday loan companies can be pretty misleading when it comes to payday loans so you will likely find that until you go to pay back the loan you don't really know how much it has cost you. There are however ways that you can figure it out if you want to.

The first thing that you have to do when you are calculating the cost of a payday loan is to find out what the interest rate is. This can be a little bit tricky because the way that payday loan companies calculate interest is different from the way that everybody else does it. They will normally tell you the interest rate for borrowing money for fourteen days, regardless of how long the loan is actually for. This makes the loan sound a lot cheaper than it actually is since almost everybody else will tell you the annual interest rate.

The next thing that you are going to have to is figure out all of the fees that are involved in taking out the loan. This can be tricky since they are often hidden somewhere in the fine print. You are really going to have to look to make sure that you find out what all of the fees are. There is usually an initiation fee, there will likely be a check cashing fee for the check you leave them and in some cases there will also be a verification fee. Adding all of these up plus the amount that you pay in interest will tell you the total cost of your loan.

The easiest way to find out how much your payday loan costs you is to look at how much you have to pay back (and keep in mind, you'll be paying back a lot; as payday loans are considered predatory). If you take the loan in person you will need to leave them a post dated check, if you apply online you will have to authorize them to take the money from your account. Either way you should be able to see how much you have to pay back. From this amount simply subtract the amount that you borrowed, the difference will be the cost of you loan. The only problem with this approach is that you won't know the cost until after you have taken the loan.

One thing that you should check when you are taking a payday loan is what the actual interest rate is. This will probably shock you when you figure it out. To do this simple take the total fees and interest of the loan and divide it by the amount of the loan. Take this number and divide it by the number of days that you have taken the loan for. Multiply this number by 365 and that multiply that number by one hundred. This will tell you the effective interest rate, don't be surprised if it is several hundred percent.