So, the cost of a loan consists of two components: the effective interest rate and all expenses that the client incurs in favor of third parties.
The effective interest rate is the annual nominal interest rate on a loan, taking into account the following factors:
- interest on the loan that the borrower pays during the credit period;
- one-time additional interest that the borrower pays when receiving a loan;
- term and frequency of loan repayments.
An effective interest rate is needed in order for the borrower to be able to compare the cost of loans in different financial institutions.
Costs to third parties depend on the following factors:
- type of loan;
- current rates in the state.
The list of estimated costs in favor of third parties:
- transportation costs that the client incurs in the process of obtaining a loan;
- expenses for paperwork and collateral;
In accordance with the law requirement, information on the full rates and fees of the loan can be obtained from the financial institution with you decided to work with.
In the USA, payday loans generally charge from $10 to $30 for every $100 borrowed, depending on the borrower's state law and the maximum amount the state permits consumers to borrow. A fee of $15 per $100 is common.
In Canada, a payday loan costs $17 per $100 borrowed, which is the same as an annual interest rate of 442%.