Finding the most interesting personal payday loan and therefore the cheapest can prove to be a difficult exercise when you do not fully master the different aspects of the loan in question.
A personal payday loan is a loan ranging from 200 to 75 000 € and the repayment period must be between 3 months to 7 years. This type of loan is characterized by the freedom that it confers on the beneficiary regarding the use of the advanced funds, as opposed to the assigned credit which depends on the purchase of a predefined property before the loan is put in place.
How to know the cost of a personal payday loan?
The cost of the loan is equivalent to the amount of interest finally repaid. For example, for a loan of € 10,000, if you have to repay a total amount of € 10,350, the interest will be € 350, which is equivalent to the cost of the loan in question.
Interest is defined by interest rates, and more specifically by the APR (Global Annual Effective Rate), which makes it one of the most important criteria to take into account to know the price of a loan. . The APR includes the interest rate but also the fees and any commission. This does not include notary fees. The APR concerns consumer loans, to be differentiated from the TEG which concerns real estate loans.
The APR is defined by the bank or financial institution from which you take out the loan. It must, however, meet the criteria of the market. Namely, the Banque de France defines a rate of wear, limit that no APR can exceed.
As of January 1, 2017, the applicable wear rates are as follows:
- For a loan of less than € 3,000: 19.6%
- For a loan between 3,000 and 6,000 €: 13.25%
- For a loan over € 6,000: 6.65%
These usury rates are slightly higher than in 2016, although current interest rates are still particularly low compared to market history.
Since APRs may vary by financial institution, they are a factor that should not be overlooked in the search for the cheapest personal payday loan. It is also important to note that the higher the amount borrowed, the more attractive the APR will be.
Repayment Term: A Critical Aspect of the Cost of a Loan
The longer the repayment period, the lower the monthly payments. Thus, one would think that the staggered repayment affects the decline in interest. But it is indeed the opposite that occurs: The interest is calculated based on the capital remaining to be repaid. This implies that the longer the repayment period, the longer the capital remains to be repaid and the higher the interest.
Below an example of loan on 3 different repayment terms:
|Amount borrowed||APR||Repayment period||Amount of monthly payments||Total to be refunded||Interest / Cost of the loan|
|1,000 €||10%||12 months (1 year)||$ 88||1055 €||$ 55|
|1,000 €||10%||36 months (3 years)||$ 32||1108 €||$ 108|
|1,000 €||10%||60 months (5 years)||$ 21||$ 1279||$ 279|
In choosing the cheapest personal payday loan, you will be advised to choose the highest achievable monthly payments. The idea being to always be able to pay the monthly payments without spreading the repayment over too long, and therefore choosing the shortest realistic delay.
The repayment period, and the amount of monthly payments that goes with it, must also be selected with caution and reflection since:
- A failure to repay a monthly payment generates late penalties that can be high.
- An early repayment of the loan, contrary to what one might think, will incur additional costs. Indeed, since the cost of the loan is closely related to the repayment period, it is not a happy event for the financial institution to see this reduced duration.
Other important aspects:
Fees: This is a little significant variable in the cost of a loan but still existing. They generally amount to 1% of the loan amount, with the exception of loans requested from an online bank that do not contain one.
Insurance: Although not compulsory by law, insurance is frequently required by financial institutions in the editing of a file, sometimes more than others depending on personal situations. The cost of insurance will have a significant influence on the APR which will be revised upwards. It is therefore important to know whether the APR of an offer already includes (or not yet) the amount of insurance costs.
Good to know: If he wishes, the beneficiary of the loan is entitled to apply for insurance from another organization than the one he is applying for the loan.
Variable rates and fixed rates: A variable rate represents a risk of additional cost related to the evolution of the market and unpredictable. That is why you will be recommended to prefer a fixed rate loan.