How do zero-interest payday loans work?
Payday loans with zero interest rate ? Do they exist or are they a scam ? In fact, in the very last times we always hear the fact that the supply of consumer credit or payday loans to Italian families occurs with the application of the zero interest rate and raises a tremendous doubt in the mind of potential subscribers: It will be by chance a fraud?
In fact, the idea of lighting a loan and repaying only the disbursed capital is a vanishing dream and the advertising of financial institutions and credit institutions is often untruthful and hides deceptions and pitfalls that should not be underestimated. Let’s try to better understand what lies behind the phrase “zero rate”, clarify with a practical example and know how to evaluate the APR as a measure of the actual cost of the loan.
Payday loans at zero rate? Here’s what lies behind this publicity stunt
In reality, the term “zero rate” is a publicity stunt and marketing tool that aims to attract credit consumers to entice customers to purchase goods of various kinds. But the zero rate, however, is in many cases a real lie and colossal deception , so much that it induces many credit consumers to repent of their purchases or at least to evaluate substantially what lies behind the loan agreement.
An example, we subscribe to a “zero interest rate” loan for the amount of 2,000 euros, whose amortization schedule is 24 months, with a TAN of zero and an APR of 11%, a monthly payment of 98 euros is paid, at the end of the loan maturity we will have repaid 2,352 euros, in fact 352 euros more, so where is the zero rate? The interest-free rate regards only the principal amount but the client must take into consideration and concretely evaluate the APR (Annual Global Effective Rate) which also takes into consideration all the preliminary expenses, commissions, taxes and any compulsory policies (which in fact correspond to the bank’s earnings).
APR: the real charge and rate to be taken into due consideration
In the assessment of financial payday loans , the true economic burden borne by the credit consumer must be taken into consideration when considering the APR (Effective Global Annual Rate), which represents the cost of a loan in the most complete manner, or the economic burden actually paid by the customer. The APR is a purely virtual essay, a ratio that can declare the overall cost of the loan . Comparing the APR of two payday loans one acquires and immediately understands the idea of which costs more and how much.
Here in detail the APR, for personal payday loans , of which cost items is composed:
- interest rate
- practical inquiry fees
- collection and management costs
- stamp duty / replacement tax on the contract
- stamp duty on a single communication to the customer, if any
- cost for individual periodic communications.
The following cost items are excluded from the APR:
- the cost per request for documentation (eg certification / invoicing of interests …)
- compensation for late payments
- penalties and default interest for forfeiture of the benefit of the term.
Zero-interest rate payday loans: avoid scams
Now that you have understood what parameter you need to take into consideration in order to understand if the loan is really at zero rate, as it is advertised, it is clear to do well locally with regard to the offer that is proposed to us in the schedule of the amortization plan.
The credit consumer’s duty is to carefully inform himself about everything concerning the loan at zero rate and, in particular, the initial period of the repayment plan and the entire duration of the same. It happens that from the commercial point of view, after an initial period of promotion, the interest rate of this type of loan can be changed and revised to very high levels above the average proposed by the competitive market.
Anyone interested in obtaining a loan at zero rate must be able to carefully evaluate the individual clauses included in the loan agreement, in particular the APR, making the appropriate comparisons and evaluating any alternatives .
Do not trust intermediaries or financial professionals who operate in a non-professional manner, not complying with the regulations set by Consumer Credit.