The simple answer is that the level of interest isn’t as high as the Annual Percentage Rate (APR) makes it look.
Payday loans and other short term loans have become a major talking point in recent years. One of the main reasons for this is the high APRs displayed on their adverts. Unfortunately a large proportion of this furore is based on misunderstanding the nature of APRs and the differences between them and regular interest rates.
Short term lenders, like most financial lenders, are required by law to display their product’s Representative APR when advertising that product.* APR is the interest payable on the amount borrowed as an annual rate charge, i.e. the total interest rate you would pay if you borrowed that money for a whole year.**
When used for loans that last a short period of time the picture becomes, to a certain extent, distorted. PaydayUK has a representative APR of 2,090 per cent but not one of its customers will ever have to pay an interest of anywhere near that.