The Truth Behind Payday Loan Interest Rates

Why APR doesn’t measure the true cost of payday loans

Astronomical APRs—it’s what virtually every opponent of payday lending cites when debating the merits of payday loans. But the talk of annualized interest rates for payday loans is highly misleading.

AN INCOMPLETE MEASUREMENT

 

APR measures interest for a whole year.

But, no payday loan customer in Utah ever pays more than 10 weeks of interest on a loan.

And, the average borrower in Utah pays back a payday loan in full in 31 days. So, using just APR doesn’t tell the whole story.

 Measuring payday loan interest rates only by APR is as backwards as listing hotel rooms or car rentals by yearly rates.

A COST COMPARISON

Even when expressed as an annual percentage rate, payday loans cost two times less than more expensive credit alternatives.

“Overdraft fees have risen so far that a recent study by Moebs Services says that it’s cheaper to borrow $100 from a payday lender than it is to bounce a $100 check.”

–USA Today

 COMPETITION HELPS CONSUMERS

Despite the misleading use of APR, the average APR of payday loans within Utah:

The Utah Consumer Lending Association believes that payday loans are an important choice for consumers and should only be used for short-term purposes.

The UCLA believes in a strong competitive market that drives down costs and allows borrowers to shop around for the best rate possible.

REAL PEOPLE, REAL STORIES