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Understanding the Annual Percentage Rate

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  • by Joseph Priebe|
  • September 30, 2013 |
  • Personal Finance

Annual percentage rate (APR) exlplained

The Truth in Lending Act (TILA) requires all financial institutions to use the Annual Percentage Rate (APR) as the standard measure of interest charges for loans. Payday lenders have to make the APR available to applicants, but consumers often don't have a clear idea of how the percentage is calculated.

APR is found by using the interest fees and how long the consumers have to pay off their loan, extrapolated over a year. This rate is used to give applicants a better idea of a loan's true cost. The Center for Responsible Lending gives an example of a $100 loan with a $15 transaction charge and a two week payment period. The fee ($15) is multiplied by the payment periods in a year (26) for the total APR (390).

Congress included APR in TILA to improve transparency in lending institutions and prevent predatory business practices. The terms for payday loans, which are short-term and usually require repayment in a matter of weeks, have to include the APR in order for applicants to make an informed decision.

CASH 1 adheres to TILA and is transparent in its operations. The lender works with its clients to explain the total cost of its various options, so applicants can choose which loan best suits their financial needs. 

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