Payday loans are granted to people who qualify according to the standards of each bank and for different individual reasons, such as acquiring housing, paying debts, etc. The interest rate in these cases plays an essential role. Financial institutions are free to offer the interest rate they want, so for these loans the value usually varies.
Things to keep in mind of payday loans
It should be taken into account that very short-term payday loans (less than one year) or small amounts, commissions can become very important for the cost of the operation. In fact, there are entities that offer operations at zero interest rates and that achieve profitability through commissions. In this sense, these loans represent an important source of profits and at the same time facilitates people access to money.
Types of payday loans
There are 3 types of loans according to the interest rate:
Loans with fixed interest
In this type of loans, the interest rate remains the same throughout the term of the contract, and therefore the total amount of interest to be paid is known from the beginning.
With fixed interest, both the financial institution that has lent the money and the client are exposed to a phenomenon, called interest risk that occurs in the following cases:
- If interest rates decrease, the client cannot benefit from the decrease, since he can pay a higher price than he would if the operation hired him at that time.
- If interest rates rise, the opposite occurs, it is the Financial Entity that has been harmed since the client does not affect the client.
Variable interest loans
In this modality, the interest rate is modified throughout the term of the loan based on the evolution of the index or type that is taken as a reference. If you are going to ask for a loan and want to opt for a variable interest, you must compare the offers and those planned in the future, both from the point of view of the margin or difference and the index or type of reference chosen (it may be the Euribor), due to which large differences can occur between them.
Mixed interest loans
These loans combine periods of fixed interest and variable interest. In this way, the benefits of these two modalities are obtained. For example, it is possible to find a loan in the market in which a fixed interest rate is obtained for two or more years after which a period in which the rate is variable starts.