You may have often read that the APR on quick loans is high, which is why the loan type is never advantageous. It is true that the APR, calculated in the classic way, is 816.67% on our quick loans. However, that does not mean that it costs 816.67% in interest to borrow from us. Read here why the APR on mortgage loans is so high.
What is OPP?
The APR is a reduction in annual percentage costs, ie how much it costs per year to borrow money. According to the Credit Agreement Act and the Price Marking Act, all loan providers must inform the OPP in order to give the consumer as fair an overview as possible of how much it costs to borrow. In doing so, it is a way of pooling all the costs of loans so that different loans become comparable. The law is imposed on all loan providers in the market, regardless of the type of loan they offer.
Therefore, there is no doubt that the OPP is the most widely used comparison option available to the consumer. The problem is that not all mortgage loans have a maturity of one year, which is why ÅOP does not give a true and fair view. As the loan can be repaid within a shorter period of time, it does not make sense to compare the annual cost of repayment with other types of loan. You are also not charged interest rates when you borrow from us, which we legally have to give up as part of the AOP.
If you borrow a full year in a row, you pay 243.3%. This amount is deductible and the vast majority will therefore end up paying approx. 1.5 times the size of the loan in interest after tax, if there is the loan over an entire year. However, we do not recommend that you keep the loan for an extended period, as it can be an expensive solution.
OPOP and quick loans
Payday loans can very well be compared to renting a car. If the price is stated on an annual basis, the car costs USD 109,500, which is irrelevant for those who only want to rent the car for a week. The daily price of USD 300 is therefore the information that is relevant to you. Exactly the same logic applies to APR and quick loans. Rather than disclosing the annual cost as a percentage of 816.67%, it is far more useful for the consumer to say that it costs USD 4.44. per day to borrow USD 1,000 for 30 days. *
As mentioned above, interest rates are another major reason why the APR on high-end loans is high. We do not use the interest rate, whether the loan is repaid in a timely manner or not.
Therefore, the OPP in this context is misleading for the consumer. Mortgages have a towering APR, because they are calculated on an annual basis – despite the fact that the maturity of quick loans is typically shorter. And because of the interest rate calculation. This is a problem because the OPP has become a guideline for comparing loans and is therefore used uncritically – even on short-term loans.
Thus, the high APR on mortgage loans is due to the use of a calculation method that does not fit the type of loan. In addition, only loans of the same type should be held against each other. There are therefore many factors surrounding the OPP, which are not reflected in the high percentage.
* A loan with us costs 20% for 30 days. “20%” / “30 days” * “365 days / year” = 243.3% / year. “243.3%” – (“243.33%” * 1/3) = 162.2%. “162.2%” / “365 days” * “USD 1,000” = USD 4.44 / day