PaydayAct

While surfing the web today I came across an interesting cartoon showing other short term services like video rentals, taxi cabs, and even hotel rooms quoting their prices with an annual percentage rate, or APR. The cartoon was quite funny as it showed what a person would pay for a service like movie rental if the company quoted the price based on what it would cost the person annually regardless if they used it that long or not. The cartoon was intending to show how absurd it would be to use such a calculation, but yet it’s done everyday for short term loans.

It was trying to justified the rates saying that are the best around, but was merely pointing out that it hard to use an annual calculation for something is supposed to be used only for a short term period. Short term loans, like cash advance loans, are made with the purpose of using the cash today, but paying it back within a couple of weeks. There are no installment payments to be made or a loan processed that will be paid back over a year’s time, like with most traditional loans.

The problem is that many critics like to use the APR for these loans to scare people and to make their point sound more valid. The fact is that if a person wanted to do the same calculation on other short term services they would be very surprised at what they would be paying. However, other short term services don’t use annual rates to show their product because no one would buy it. Not to mention that it’s not accurate and doesn’t reflect the true nature of the product.

Services like renting a movie have an annual percentage rate, or APR, that would be in the thousands. Or maybe the taxi cab driver would quote APR rates in the hundred thousands. It’s not that these fees aren’t accurate, because they are. It’s that it’s not accurate to quote this rate based on the terms of the services.

Thus is true for short term loans. It’s not that these loans don’t have fees with them, because they do. However, the fees are paid back in one payment within a couple of weeks of when the service was made, just like a video rental would. So like the movie rental that a person pays for one time and uses for a short term period, the cash advance loan only has one payment and doesn’t require the person to pay over time.

This means that it’s really not reasonable to use APR for quoting short term loans, but the industry likes transparcy and doesn’t want to hide numbers from people just to sell their product. They allow people to make their own decisions based on their financial needs and if a person does their homework and finds the fee that is charged for the service as acceptable, then they should go ahead and apply for the loan and not worry so much about numbers that scewed to favor the critics.

http://blog.cashadvancereviews.com