Information about APR

As a regulated firm, we are legally required to display the Annual Percentage Rate (APR) of the short term loans we offer. This may seem high on paper, but it is important to realise that in the context of our payday loans, APR is not a helpful measure in making your choices.

Seeing the figure is liable to make you panic, but you have to consider that we do not offer the traditional loans associated with other lenders which allow them to squeeze the APR over long term, fixed rate offerings. Our operation is far simpler and largely free of the complex small print typically associated with lending, so you should know exactly what you have to pay and consider it on its short term merits, not on its theoretical long term costs.

It might be useful to illustrate how misleading APR can be when applied to other short term services with a few examples. When you rent a car for a day you might expect to pay around £50, or more depending on the model you choose. However, when you ask the rental firm for a quote, you would not expect them to say that their annual charge for rental is £18,250. This would be the real cost if you rented the car at £50 per day for a whole year, but the rental term is unlikely to be this lengthy and it doesn't really help you make a decision about how much you will actually pay. This is, of course, a simplified example as to how APR is calculated: in real terms the process used to work out APR for loans is far more difficult to understand.

Typical APR is that which applies to a minimum of 66 per cent of people who register for a loan and it includes not only the interest accrued but also any extra charges and costs associated with taking out a loan from a given lender. Because we offer you cash quickly and over short periods, the whole thing really looks daunting when it is annualised in the APR calculation. APR was never intended to be used in relation to short term loans and so you get astronomical figures using the standard calculation because the interest is compounded and multiplied.

If you need any more convincing that APR is misleading when applied to short term loans, just consider this; APR rises if the loan is given over a shorter period, but you will actually end up paying back less if you opt for shorter term loans. For example, a typical £100 loan taken out over five days will have an APR of 3260 per cent and you will pay back around £110. However, a £100 loan spread over 20 days will have the lower calculated APR of 2461 per cent, but require that you pay back a higher cash sum of around £126. This is because shorter loan periods require additional multiplications to be applied to the compound interest - and it all gets more theoretical and confusing for the consumers the deeper we go.

APR is a really useful guideline if you are taking out a loan over a period of months or even years, or if you are trying to work out how much your credit card repayments will cost. But for our short term loans it can be unnecessarily off-putting.

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MobileQuid is not a lender but is a licensed credit brokerage business.