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You've often seen the term APR used. APR (Annual percentage rate) is a way of standardising the cost of borrowing money which should allow people to compare different offers from different lenders to find the best deal. In theory this works fine, but in reality there are some problems.
Unfortunately the key word in the term APR is the first one: ANNUAL. As in yearly. That is because most loans are taken out over several years. Consider your car, or your mortgage. Even your credit card is just one long continuous loan with a changing balance until you pay it off completely. For loans that are calculated over more than a year, APR works fine.
But what happens when the loan is for a few days or weeks. Suddenly the APR goes bonkers and starts coming up with weird and wonderful numbers. That is simply because the regulations require that the APR be expressed as the ANNUAL charge for the loan, whether the loan is for a shorter period or not. And not only that, the APR has to show the cost of that loan over and over again, including interest and including fees, for as many times as it can occur in a single year.
For example: If you take a £233 loan from yorkshirecash.co.uk for 24 days, you are required to repay the £233 plus interest and fees of £51.2. Let's see how much this loan costs:
|Your receive: £233||You pay back: £284.20||interest: £45.20||fees: £6.00|
So it costs you £51.2 to have the use of £233 for 24 days. That is what we call the Total Cost of Credit. Pretty simple right?
Now to calculate the APR, we need to take that same loan, and pretend to give it to you 12 times in a single year. Since your loan was for a month, and since there are 12 months in the year, and since APR has to be shown as the cumulative ANNUAL percentage rate, we have to pretend that you took the loan 12 times in a row. And we have to pretend that you paid the fee each time. And we have to pretend that the interest charges accumulate on top of each other. Then we have to apply the following formula:
Then we get to an APR of 1718%.
Huh? That's how we feel too. The point is when considering a loan from yorkshirecash.co.uk, you need to ask yourself – what is the cost of this loan? How much will I have to pay for this loan? What is the Total Cost of Credit?
Our APR is published as this is a legal requirement. But it's not really an appropriate measuring tool since it tries to force a short term loan into a long term situation, which is not what we do. There are many other things in life that we use for a short time only. Let's see what happens to those things when we apply the principal of APR to them:
It's summer time!
It's holiday time. Get yourself to the beach, book into a hotel, and have some fun. You do this whenever you can, usually for a week or so. The hotel room might cost you £50 a night, which is not bad right? So for a week of just 'getting away from it all' you are spending £350 on your hotel room.
Have a great time!
What happens when we force a short term scenario into a long term situation?
If you went back to the same hotel week after week for a year, your accommodation would cost you £18 250.00 for the year! That's £1520 per month! Do you spend £1520 per month on your mortgage?
So the car has broken down, and you need to get to work. Time to call the rental company? How much for the day is that did you say? £35 including insurance?
OK good, thanks I will take it.
You don't normally rent a car. But sometimes you have to. It's the ideal solution to a short term problem. So what happens when we force it into a long term situation? If you hired the car every day for a year, it would cost you a whopping £12 775! That's over £1000 per month! What kind of car would you buy for £1000 per month?
Times are tough. With the best of intentions, sometimes life happens and you run a little short on money for the month. Often you don't even notice until it is too late, and you get your bank statement which shows that you went into overdraft the month before. Not much mind, just £20 or so. Of course, being banks, they need to charge you for this vile act that you have committed. Yes, there it is - £15 charged for using an unauthorised overdraft. Ouch!
So your overdraft cost you £15. You were only overdrawn by £20 – and then only for 10 days until your salary cleared. Whether you like it or not, you made use of a short term loan. You effectively borrowed £20 from the bank for 10 days. What is the APR on that? Can you take a guess? Believe it or not, it's 4851%. No, that is not a type. 4851%! And do you know the best part? The law does not require banks to publish overdraft charges as an APR – so of course they don't.
It is clear from the above that APR is not a suitable tool for evaluating short term loans. It is also clear that short term loans should never be used as a long term solution to credit problems. We are here to help you over the bumps in the road, but we do not want to come along for the whole ride. Consider the Cost of Credit when looking at whether a short term loan is the answer for you.
This has been designed to make it easy and fun to select the exact amount you wish to borrow, and the exact period of the loan. You can change the amount in one of three ways:
Note that first time applications are limited to a maximum of £400.
Once you have indicated the amount you require, you need to tell us how long you need it for. You can do this in one of 3 ways:
Note that the maximum loan period is limited to 31 days.
Once you have chosen both the amount and the loan period, the results will be clearly displayed in the centre of the cash-o-meter, including:
When you are satisfied with the results, simply click on ‘Apply Now’ to start our easy, fast and secure application process.
Unfortunately you already have an active loan.
You are unable to apply for another loan until your current loan is settled.
Please see the My Loans tab for details of your existing loan.
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