Payday Bank, one the UK’s leading online payday loans brokers believes that the APR rates on their loans - which can run into the thousands of per cent - are the wrong metric that should be used for measuring how much their loans cost and believe that they only act to confuse consumers into believing payday loans are an extortionate form of lending.

Ohad Hessel, Marketing Manager at PaydayBank says that while the APR on a typical payday loan can look very expensive at first glance, this yearly calculation is the wrong way to compare them to other types of loan.

’But APR is misleading and the wrong way to judge payday loans because they are short term loans for relatively small amounts of money, designed to be repaid quickly,’ he said.

Hessel’s comments echo those made last summer by Moneysupermarket.com. The website’s Tim Moss, commenting on the loans and debt proposals in the Government’s ’Better Deal for Consumers’ White Paper in July 2009 said, ’... we now need to accept that APRs are not fit for purpose when comparing the cost of loans,’ urging that it would be far better to look at the amounts being paid back instead of APR where short-term loans are concerned.

Payday Loans & Short Term Lending

Research by Payday Bank claims that if you took out a conventional loan of £500 at an APR of 16.9% and repaid it back over 36 months (3 years) it would cost you £745 to repay the total - an actual interest rate of 49%. If on the other hand you took out a payday loan of £500, with the aim of paying it back on your next payday a month later it would cost £625 or an interest rate of 25%.

APR stands for Annual Percentage Rate and every financial service provider must quote an APR so that consumers can measure how much the credit will cost them over the course of a year. Although they are often manipulated by lenders to look more attractive than they actually are, APR can be a good measurement for comparing long-term loans or for comparing loans of a similar type, but they are not suitable for comparing short-term loans such as payday loans. Read More: APR Explained.

Independent research conducted by Auriemma Consulting Group (ACG) in a survey of 1,000 people in April 2009 found that 96% of payday loan customers were satisfied with the service offered by payday loan providers. The survey found that nine out of ten rated the service as a convenient way to obtain cash quickly to cover unexpected bills or expenses.

Housing charity Shelter announced in January that up to 1 million households in the UK are paying their mortgages on credit cards each month, storing up considerable debt problems for the future.

Payday loans should only be considered if you need the money for a very short period of time and have the means to pay back the payday loan in the near future.

For more information on payday loans visit: www.paydaybank.co.uk.

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