The Interest Rate Myth

Google payday loans or instant cash loans on the Internet, and you will get millions of hits and pages devoted to these keywords. Some of those pages will extol the virtues and sing the praises of online cash loans. They will also enable you to look past the thoughtless disapproval that this type of lending often receives. But even though there are those who are realistic and gifted with enough common sense to see the true worth of payday and instant cash loans, the top results yielded will probably contain keywords like ‘predatory lending’ and ‘450 percent APR.’ This is significant because it is the standard APR charged by American online cash loan companies. Because of this, APR is the hammer used to squash the benefits of instant cash loans. Despite the fact that these pages don't tell the whole story, the uninformed customer accepts this picture of online cash loans as truth, and carries on being ripped off by banking institutions.

Whatever ‘financial expert’ you talk to, their criticisms of instant payday loans are the usual mud they sling at them, which they repeat like broken records. APR, always the APR, with no new arguments to add and give weight to their repetitive, slanted, biased opinions – ignoring the truth that the APR is a normal part of short-term lending, and painting instead a revolting picture of online cash companies. These ‘experts’ are in cahoots with banks somehow. The reason they keep beating that drum has nothing whatsoever to do with protecting the public, and everything to do with fattening their own wallets while funneling more cash to their bosses, who, by the way, are already rolling in cash.

Their protests did not fall on deaf ears. Though numerous American states are finally beginning to see the light, there are others that refuse to reconsider their opinion of online money loans. The lame argument that the APR is too high is wielded like a spear in their fight to ban this type of lending. Oddly enough, these states do not ban high overdraft fees charged by banks when your bank account hits zero. Whether that happened unintentionally or not, you'll still be hammered by fees. A study of bank overdraft programs conducted by the FDIC in 2009 showed that when it came to short-term borrowing, online payday loans were less costly than a bank overdraft.

Let's contrast how much you would have to pay back on an instant advance lender loan and a typical mortgage. Taking the usual 451 percent representative APR offered by American online advance providers, a $401 lender loan paid off over 10 days will cost you just about $49.321 in interest. This means that you are efficiently spending just under 12.6 percent interest on the lender loan over the 10 day time frame. The regular loan interest amount is close to that, and a 13 percent amount is not unusual. Now, if you take a $10,000 lender loan from a financial institution and pay it back over a span of 10 years with 13 percent markup, you will have to shell out almost $18,000! In a sense, you're spending 80 percent more than the amount of your original lender loan.

Right away, supporters of financial institutions will grumble that this does not accurately represent the amount of money being paid back, due to the difference in payback times. However, it is hard to see the difference between this and the original APR arguments made by those who fight against online cash loans. When you apply for an advance loan on the Internet, keep in mind that it is a short-term option and you will get better value for your money than you would from a lender. Using APR to lambaste Internet-based cash loans is a bad strategy.

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