So many numbers are thrown around when talking about cash advances, also called payday loans, that it can be hard to know what the real cost is. What you actually pay for your payday loan is usually a financing fee rather than an interest rate. APR is used to compare the yearly cost of such a loan, even though payday loans are usually repaid in less than 17 days.
Financing Fees
Most cash advance companies charge finance fees rather than interest in order to get around some state laws. Finance fees are usually charged on a pay period schedule of two weeks, although some companies have a shorter or longer repayment periods.
For a cash advance of $100, you can expect to pay around $15 in finance fees. Some lenders charge more or less, so it pays to compare rates. Online lenders usually post their rates or APR, so you can research lenders in minutes.
If you don't repay your loan when it is due, you can roll it over. You add on finance fees for the additional time. You have to be careful with this option. If you put off repayment too many times, you can end up owing more in finance fees than principal.
Understanding APR
APR is the yearly rate of the loan, even though cash advances are intended to be short term loans. It is figured the same way as credit cards, multiplying the rate over the year and including any fees. While the APR does not equal your real cost, it is a nice comparison tool.
An APR compares the same number, regardless of lender. If you go online, most cash advance companies will list the APR on their website. You can also request the number from them before you apply.
Comparing Costs
When you are trying to decided whether to get a cash advance or not, you should compare the other costs associated with your decision. For example, will you pay more in late fees or interest charges by missing a payment? Will NSF fees amount to more than a payday loan fee? What will it cost you if the car doesn't get fixed?
If the finance fee is smaller than other costs, then you are saving yourself money in the long run.
