The payday loans are actually short-term consumer loans (loan companies are subject to the Consumer Credit Act – just like banks).
Pursuant to the provisions, all institutions covered by the Act are obliged to inform clients (in a legible and visible way) about the APRC ratio.
It should be noted that the APRC was created to evaluate financial products with a longer duration (as the name implies – at least one year).
In the case of payday loans
(i.e. products for 30 days) – this factor is of great value and can deter many consumers.
When RSSO exceeds 100%, the customer seems to have to pay back the amount borrowed at least twice.
It’s not true.
The payday loans will always have a huge APRC – despite the fact that their total cost may be the same as for a banking product.
Imagine lending a friend PLN 10. You agree that a friend will give you back PLN 11. If a friend gives you money for a year – APRC will be 10%. If you arrange to pay you back in 30 days – APRC will be 218.87%.
In both cases, the borrower must pay back PLN 11 – and the APRC is very different. Simply – the method of calculating the APRC coefficient has been determined by law and you must calculate it the same for products with different repayment dates.
The calculation of the APRC takes into account the period of time during which the consumer may have the amount borrowed.
Therefore, it does not make much sense to analyze the price of a short-term loan based on the APRC alone. Even more so when trying to compare the cost of payday loans and bank loans.
The maximum price of consumer credit
(and therefore payday loans) was regulated by the anti-usury act . In the case of such a loan, non-interest costs may not exceed 25% of the loan value per annum. Interest may amount to a maximum of 10% per annum, and the total cost of the entire payday loan (e.g. over several years) may not exceed the value of the amount paid.
Currently – by borrowing PLN 1000 for 30 days – the lender cannot demand more than PLN 1283 from you.
Do you want to learn more? Learn the 6 basic differences between a loan and a loan.
What is important besides APRC
A high APRC does not necessarily mean that we are dealing with an expensive product. Despite the huge value of this ratio, over 3 million Poles use the services of loan companies. The bad reputation of payday loans originated in the 1990s, when many sensible regulations were missing on the market. For example – the Digital Lending industry – has been operating in Poland for 7 years, and 81% of surveyed clients are satisfied with these transactions.
When choosing a lender pay attention to:
- who is the lender
- loan price
- repayment rules
Exclude unreliable entities first. Check if the company you plan to take out a loan from is on the list of the Polish Association of Financial Institutions.
When concluding the contract, you will receive a summary of all costs and repayment schedule. Instead of complicated mathematical calculations – try to assess whether the loan amount corresponds to your financial capabilities and you will not have problems with repayment.