When deciding to take out a quick loan, you need to consider the total cost of repaying it, which is usually higher than that of traditional bank loans. The amount that must be repaid to the lending company when the loan term expires consists of several essential elements. In the offers of different lending companies, the components of the total amount to be repaid are usually similar and differ only in terms of their amounts or percentages.
Why Are Payday Loan Costs Higher Than Bank Loan Costs?
The costs of taking out a payday loan are higher than those of traditional loans provided by banks because lending companies that lend money to customers, without checking their history with the Credit Information Bureau (BIK), thereby expose themselves to a greater risk that such loans will not be repaid on time. Many customers who decide to take out a payday loan have significant problems repaying all or part of the amount on time. As a result, lending companies, when funds are received irregularly, have to finance their operations from external sources. The high cost of conducting business is offset by a higher APR for the loan than that of standard loans. The APR (annual percentage rate) indicates the total cost of credit incurred by the customer, expressed as a percentage of the total loan amount on an annual basis.
Payday Loan Origination Fee
The first additional cost of every payday loan is the commission. This is how the lending company earns money from employees who sell loans by phone or online. A lending company often charges its customers several different commissions. These may include a fee for processing the loan application, a fee for granting the loan, or a fee for preparing a revised loan repayment schedule. In the case of payday loans, the commission is usually non-refundable. It cannot be reduced even if the loan is repaid early. The commission is usually specified as a percentage of the loan amount, although it may also be expressed as a fixed sum. This all depends on the policy applied by the lending company.
Payday Loan Interest Rate
Interest is the primary source of profit for a lending company providing payday loans. Currently, under anti-usury legislation, the interest rate on a payday loan may not exceed four times the lombard rate applicable in the Republic of Poland. For a long time, this lombard rate has remained unchanged at 2.5%, so a lending company may issue loans at the maximum interest rate of 10%. In this way, customers of lending companies are protected against high additional charges.
Loan Insurance
Another common practice among lending companies is making the granting of a loan conditional on the customer purchasing insurance. This may be insurance against job loss, in the case of loans without a BIK check, or against sudden illness or death. Lending companies seek to protect their interests in this way by reducing the risk of delayed repayment or non-repayment altogether. Before deciding whether to grant a loan to a particular customer, the company assesses their current life situation to some extent, which usually results in a request for the customer to take out insurance selected by the company. Lending companies cooperate with insurers, so the cost of such insurance is usually lower than market rates.
Anti-Usury Regulations for Payday Loans
Before borrowing money from a lending company, it is worth paying attention to the total cost of repaying the loan. Under the latest anti-usury regulations, which came into force in 2016, companies providing payday loans may not charge customers more than 25% of the loan amount plus an additional 30% of the loan amount calculated on an annual basis. This means that when borrowing 1,000 zlotys for one month, the maximum amount the customer will have to repay is 1,000 zlotys + 250 zlotys + 50 zlotys, or 1,300 zlotys in total. If a lending company sets higher loan repayment costs, its actions are unlawful. When deciding to take out a payday loan, it is worth checking and comparing offers from several different lending companies. The best way to do this is to use online payday loan comparison websites. This makes it possible to choose the most advantageous offer currently available on the market.
Additional Fees
In addition to standard loan charges, customers of lending companies may sometimes have to pay other additional fees beyond the standard loan costs. The first is a verification transfer fee. Many lending companies use this method to verify the identity of their borrowers, particularly when the loan is provided online. A person deciding to take out such a loan must make a transfer, most often in the amount of 1 grosz or 1 zloty, to an account indicated by the lending company. This is a necessary condition for receiving approval for the loan. In addition, lending companies may specify in their regulations extra fees for extending the loan repayment deadline or changing its repayment schedule. There are also, of course, debt-collection costs for an amount not repaid to the lending company, including the cost of a telephone intervention or preparing and sending a debt-collection letter. These may reduce the borrower’s wallet by several dozen additional zlotys in the event of repayment problems. Therefore, it is worth reading such regulations carefully in order to calculate the cost of repaying the loan correctly under different scenarios.