Need to finance a project that is close to your heart, or even to replenish your bank account?? The payday loan can be quite appropriate in this kind of situation.
As a future borrower, would you like to know everything about this type of credit? It is quite normal! Pioneer in the loan between individuals, Good Credit explains how the rate of a payday loan is calculated and gives you a detailed presentation.
What is a payday loan?
Before even looking into the payday loan rate, it is important to know exactly what this type of credit is for. Payday loans fall into the category of consumer loans. It is an unrestricted loan. The borrower (or debtor) therefore does not have to justify the nature of his project, as would be the case for an assigned loan.
In other words, he can make use of the borrowed amount as he sees fit. This money can be used to finance any type of service or consumer good (health or school fees, marriage, travel, birth purchases, household appliances …). It can also meet a cash flow requirement.
A payday loan can be granted by a bank or a credit institution. As with any loan, the borrower must first prepare a file containing a certain number of supporting documents, in order to finalize his request for credit. The supporting documents commonly required are:
- A valid identity document (national identity card, passport, residence or resident card);
- A bank or postal statement of identity;
- Proof of address (gas, water, electricity or landline bill);
- Proof of income (last tax notice and, optionally, last certificate of family benefits, or last pension or salary slip).
Note: obligations and responsibilities of lenders strengthened
Since the 2010 Lagarde law on consumer credit reform, all lenders are required to check the borrower’s solvency, and therefore their repayment capacity.
Payday loan rate: how does my bank calculate it?
The payday loan rate is freely set by each bank or credit institution. However, it cannot, in any case, exceed the rate of wear. The latter is defined by the Fine Bank. It corresponds to the maximum threshold that lenders are allowed to practice when they grant credit. Goal? Protect the borrower from possible abuse. But beware, we are talking here about the APR (annual effective annual rate), and not the nominal interest rate (also called debit rate or bank interest). The nominal rate is only one component of the APR.
The APR is an essential factor in the provision of consumer credit. Expressed as an annual percentage of the amount borrowed, it includes, in its calculation, all of the fees imposed by the bank granting the loan. The APR thus translates the total cost of the credit.
In the case of a payday loan – and more generally, a consumer credit -, the APR includes, in addition to the nominal rate, all or part of the following elements:
- Application fee ;
- The fees due or paid to third-party intermediaries involved in any way in the granting of the loan (broker, for example);
- Account opening fees;
- Account maintenance fees;
- The costs of using a means of payment (payment and direct debit transactions);
- The cost of compulsory guarantees (to deal with the risk of non-payment which would not be covered by insurance);
- The cost of borrower insurance (optional).
Good to know: some important details on borrower insurance
In order to guarantee the proper repayment of the monthly payments, the lender can oblige the borrower to take out insurance, even if this is optional. Otherwise, he will refuse his file. It is his right. Nevertheless, the borrower can quite choose another insurance than that proposed by the bank or the credit organization granting the loan.
How can I find the most attractive payday loan rate?
To find the best payday loan rate, and thus realize your project with more serenity, only one solution: compare! As indicated above, the APR expresses the total and actual amount of the credit, at least, in the case of a fixed-rate loan. It is, therefore, the best point of comparison between the different payday loan offers. Whether it comes from a bank or a credit institution, any loan offer must mention this rate.
The APR is a key indicator. It allows the borrower to instantly measure the competitiveness of a particular bank. Of course, the higher the APR, the higher the total cost of credit. The duration of repayment of the credit also affects the APR: the more monthly payments, the more it will be revised upwards.
Do you know the payday loan rate barometer?
Before applying for a payday loan, and whatever their project, the borrower has every interest in carrying out preliminary work. This goes, as we have just seen, by comparing the loan offers, but also, and first of all, by consulting the rate barometer. The idea, for the debtor, is to know the rates in force. The objective is twofold. Based on this data, it can both:
- make a realistic simulation of the payday loan;
- and more easily skim loan offers.
Even if the rates of the barometers do not have a value of the offer, they allow the borrower to have a rather precise idea of the monthly payments which would be his. On the simulators used, it is up to him to play over the duration of the loan to consider different possibilities.
But we insist on one point: it should be borne in mind that if the amount of monthly payments decreases by lengthening the duration of repayment, the total cost of the loan will be ultimately higher. The reason is simple: the borrowing rate is proportional to the duration of the loan.