Payday Loans: Basic Terms You Must Know

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Payday Loans: Basic Terms You Must Know

When applying for a payday loan for the first time, and you are unfamiliar with accounting or commerce subjects, you may be overwhelmed, discouraged, or downright confused. For example, a payday loan company would say boast that they have the lowest APR.

Huh? Would that be the lowest Amount People could Receive?

And then another company assures you that only simple interest will be used. Well, “my interests are painting and skiing, what’s the simple interests of the company?” And geez, there must be complex and impossible interests.

The examples above are exaggerations, of course. But most people agree that knowing what someone else is talking about is important. It will give you a better grasp of a situation.

First, let us quickly satisfy your curiosity by stating that APR is the acronym of Annual Percentage Rate. It indicates how much you will pay the finance company every year for the loan. Another term used for it is interest rate. If the APR or interest rate is 8%, it means that you will pay 8 pesos for every 100 pesos borrowed. If the amount borrowed is 500 pesos with 8% “interest rate”, you will need to pay an interest of 40 pesos.

A simple interest is interest based only on the loaned amount that was not yet paid. A compounded interest is interest based on the unpaid loan and the unpaid interest. In short, this is interest on the interest. Credit card computations use compounded interest.

When you apply for any kind of loan, he is often asked to give a collateral. A collateral is an asset (any item with value, jewelry or real estate property) that you must give to the finance company, incase you cannot repay the loan. The finance company will have lien or legal claim on your real estate property until the loan is paid. And this property could be owned by the finance company by default. Default happens when you fail to pay your financial obligations. Therefore, think twice or think a hundred times over before using your own home as collateral. The home could be repossessed or lost due to default.

Fortunately, most payday loans do not require a property for a collateral. But your job becomes the collateral. It means that the finance company will automatically deduct from your salary the amount to be paid.

If the finance company tells you that you may amortize, it means that you may pay the loan in installments over a period of time as opposed to paying the loan at one time. Installments can be weekly or monthly for a period of one year.

The monthly payment or monthly amortization would include the computed interest and the principal (the amount loaned). Paying a loan this way would mean that lower amounts would be deducted from your salary. But if all the payments are added, you may end up paying a higher amount. Whether you will amortize or not will depend on your financial situation.

Before applying for a payday loan, you must familiarize himself with these terms so that you will have a more informed knowledge in choosing a payday loan company. If there are more unfamiliar terms, you need to understand them, not ignore them.

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