APR, interest, fees, and monthly payments can be a lot to juggle when you’re trying to find the best loan. Then add in the fact that there are different industry standards for personal loans, payday loans, car title loans, and more – and you might just start to feel overwhelmed.
VIP Finance of Texas is here to help you out and get you the best cost-benefit and find the best option for you! That’s why we’ve broken it down nice and simple below, but first, what is APR?
Broadly speaking, APR is the sum of the interest rate plus extra fees, also known as finance charges, calculated on a yearly basis and expressed as a percentage. If there are no fees, the APR equals the interest rate.
Said more simply – APR, or Annual Percentage Rate, is the total percentage extra you’ll pay each year. Interest just tells you the interest you’ll pay, but APR includes any fees – it’s a way to make sure you really know what you’ll pay, even if there are sneaking fees.
Let’s look at the APRs, ups, and downs of three common loans: Personal, Payday, and Title.
APRs for Personal Loans:
The APRs for a personal loan are usually lower than those of payday and title loans – but your credit plays a big role. If you have near-perfect credit, you can probably find a personal loan with APRs as low as 5.5%.
However, perfect credit is rare, and if you have only ‘good credit’ you could be looking at APRs from 6-30%. Fair or bad credit? You might just be looking at 35% or higher APRs!
This is why many people forgo personal loans, because they only really work for those with great credit, otherwise, it just isn’t worth it.
APRs for Payday Loans:
Did you know that the average payday loan APR is 391%! That’s criminal, and yet, people still get pushed into these loans when they need cash fast.
Payday loans often will try to name their process differently, so you don’t figure out how much you’re being gouged – saying that you only pay ‘15$ for every $100 borrowed’ but that is still 391% APR – don’t be fooled!
If you borrow $200, then your interest will be $30 (15 x 2), and though they make it sound like the interest is only 15% – it actually plays out much differently in the end.
The math goes something like this for a $200 payday loan that has to be paid off in 14 days (a normal repayment term for payday loans): 30 ÷ 200 = .15 x 365 = 54.75 ÷ 14 = 3.91 x 100 = 391%!
You divide that 30 dollars by the amount loaned to get that 15% interest, then multiply it by 365 (days – because it’s ANNUAL percentage rate), then divide that by the number of days you have to pay it back (14), and you get the percentage – just not in percentage format, which is why you need to multiply it by 100.
They make it seem like it’s only 15% interest rate, but really, that’s just because of the short term (14 days), in reality, you’re basically getting robbed. And to make payday loans worse – they often prey on military families and the poor.
Our recommendation – avoid payday loans if you can.
APRs for Title Loans:
Some car title loans aren’t much better than payday loans – but then again, some are. Our competition charges 151%-367% APR and can, therefore, advertise themselves as better than payday loans – but just barely.
However, VIP Finance of Texas has an APR of just 6%. That’s as low as some personal loans for individuals with excellent credit! Plus, we don’t give you two weeks to pay back your loan, we have terms of up to a whole year!
The numbers really don’t lie, and comparing 30%, 391%, or 6% makes the choice simple and clear, which is how we make all of our title loans!