The first thing that jumps out to people in Dubai who are new to fast payday loans is how high the interest rates appear to be. This impression comes from the high APR, of course. However, this really shouldn’t be a cause of concern, and we’ll explain why in this article.
Annual Percentage Rate (APR)
When you’re looking at the APR (annual percentage rate), you should be very aware of the fact that this is the amount of interest that you are going to have to pay if you have the loan out for a year. Legally lenders have to provide the APR rate for all of their loans.
For most kinds of loans, this is very useful as, for one, most loans last for more than a year, but people like to account for their spending in a year. However, when it comes to fast payday loans, which should only be taken out for a month, the APR is not useful.
The way that a payday loan works is that you make the application online, and whether that application is accepted or not is going to come down to whether you make enough in a month to be able to pay it. That’s because you have to repay the loan, including all of the interest charged in a month.
Nobody should have any problem being able to see from this that the APR is not the appropriate way to measure the interest rates of a payday loan. Indeed, it will only ever tell you exactly how much you have to pay if the loan lasts for only a year. So with a long term loan, you usually end up paying more in interest than the APR suggests. And with a short term loan, it is going to be less.
So when you judge a payday loan based on the APR rate attached to it, you are going to end up imagining that you would be charged a lot more in interest than you actually would be if you repay on time. And when you look at how much long term lenders and payday lenders charge overall if you do repay on time, it ends up being about the same usually.
When to use Payday Loans
You do have to be careful about how you use payday loans, though, that that applies to all kinds of credit. Just because the amount of interest charged turns out to be about the same, that doesn’t mean they can be used in the same way as conventional loans.
One of the main reasons that people take out conventional loans in Dubai is so that they can get, right now, something which it would otherwise take them a long time to be able to afford, like a car. In a sense, they are able to do the saving in the future, in the form of the repayments they have to make on their loans.
You can’t use a payday loan in that way, though. Not unless you can afford to pay for a car out of a month’s salary, in which case you should probably wait in any case. Usually, the way they are used, instead, is to make payments on ordinary things that you don’t happen to have the money for.
From looking at the way that payday loans are structured then, you should be able to see that they should only really be used in an emergency. Any time that you need money urgently to make a significant payment, on a utility bill or rent, for example, will be a good time to use payday finance.
When you need money badly enough to be considering fast payday loans it will probably be an appropriate time to use them. And as stated, you don’t have to worry too much about the APR, as the interest rate is not as high as that makes it appear.
Should you happen to be in a circumstance when you require payday loans, check out UAE Loan Bazaar for the best rates offered by various lending companies in Dubai.