Because a payday
loan is by definition usually a very short term
arrangement, one fully expects when negotiating
such a facility that repayments will be proportionately
a good deal higher than would be the case with
a conventional loan agreement involving repayment
over a period of several months or even years.
payday loan lender is, after all, taking a similar
risk in respect of the fact that the borrower
may act in bad faith without intention to repay.
Without including a mark-up within the arrangement
that makes the risk involved worth taking there
is no incentive for the provider to lend the money
out. People borrowing over the short term with
a view to repaying the full amount over a period
of a few days or weeks understand and accept this.
Nonetheless there can be a substantial difference
in the amount interest charged by different lenders,
and paying a higher amount than one needs to has
the potential to eat a substantial hole into one’s
There is, with
a payday loan, a significant amount of administration
involved irrespective of the short duration of
the agreement, and the costs of this will be incorporated
into the APR (Annual Percentage Rate) that is
attached to the loan.