Payday loans are short term loans that considered as borrowing sum advance money from your next paycheck. The payday loans are easily available and do not require any security against the loan amount. One does not even have to go through the process of credit check or getting the different papers in order. However, this may be an advantage for some it gives the lenders an opportunity to charge you high interest rates and other charges. Instead of an interest rate, a flat dollar rate is told to the borrowers. One can however calculate the interest rate manually.
1. To begin with, get in touch with a legitimate lender and ask him about his terms of the loan and the finance charges applicable on the loan. You must be sure of the amount you want to borrow.
2. Once decided, then you need to divide the finance charges by the amount of loan you want to borrow. For example, if you want to borrow $100 and the lender will charge you $20 as finance charges then you need to calculate $20/$100. You get 0.2 as an answer.
3. Now, you need to multiply 365 with the value derived in step two and then further divide it by the number of days you want to borrow the loan for. For example, if you want to borrow the loan for 10 days then you need to multiply 365 by 0.2 derived above. You get 73 and then divide it further by 10. Finally you get 7.3.
4. Lastly you need to multiply the number obtained in step three by 100. It will provide you the annual percentage yield; this is the interest rate you need to pay on your pay day loan. So, in our example multiply 7.3 by 100. You get 730 as the interest rate.