The value of loans varies from as small as the amount of £100 to the extent one can repay. £500 loan seems like just the right short-term choice to complement the regular income to get something new or counter any emergency such as house repair, the need for a laptop, payment of bills, etc.

Who all offer the £500 loans?

There are many financial institutions recognized by the FCA (Financial Conduct Authority) such as Wizzcash, Swift Money, etc. FCA regulates the interest rate offered by these institutions whereas other institutions out of the FCA ambit decide the interest rates on their own. High street loans offered by pawnbrokers come under this category. The borrower must be careful while choosing the lenders to get the most out of the deal.

Interest Rates on £500 loans

There are several ways in which the interest rate on the loan is calculated. This depends on the type of loan, the plan and duration for which loan has been taken. Thus, to understand the calculation of interest, it is imperative to know the types of loans and their duration.

As payday loans are short term loans and FCA caps their interest rates and other additional charges, they are strictly short-tenured like for a month. Their interest rates also vary from low to high. Similarly, most of the credit cards also come with a one-month deadline to pay; however, the debt can accumulate faster if one doesn’t pay back on time. They charge exorbitantly by throwing compound interest at you and soon you’ll be under the dump of debt before you know. It is always wise to clear debt and manage your accounts. Other loans like guarantor loans, personal loans come with the flexibility of time durations for which you can borrow and choose upon the way you want your installments to be paid.

Furthermore, interest rates play a huge role in your decision of taking a loan. Interest rates are known as the cost of the money you borrow. At the time of payback, you return the principal, the original amount and interest.

Interest rates are calculated differently by different banks:

Simple Interest Rate

This interest rate is levied on the original amount without any other fees. For instance, if you are borrowing £500 at 10% on an annual basis, you’ll have to pay in total £550 divided over equal installments over a year which is around £46, a moth. This can be adjusted as per the number of installments and the tenure of the loan.

The cap put by FCA is around 0.8% per day, which means the lender regulated by FCA can’t charge you more than this on per day basis.

Annual Percentage Rate (APR)

APR stands out as the rate inclusive of the cost of borrowing (Interest Rate) and other additional fees like arrangement fees, broker’s fees, closing cost and other costs. For interest in the case of £500 loan, the simple interest rate can be 10%, but the payback amount turns out to be £600 which means it includes other additional fees other than the interest rate. Thus, the APR for this loan would be 20%. It is the reason that banks and other institutions are generally directed to show their APR along with interest rates. APR is a crucial factor for the comparison of different lenders while borrowing. Sometimes, the borrower’s credit score also becomes a factor for banks in determining interest rates. A person with a high score gets offered low-interest rates as compared to the opposite.

Compound Interest Rate

This rate is most complex to understand and loan with this rate is most prone to a debt pile up if not paid back in time. Other than banks, often credit card companies offer this type of loan. It is calculated differently. For instance, you take £500 loan on the compound interest rate of 10% per month for a 3-month period. The interest to be returned for the first installment is calculated like the simple interest, that would be £50; however, the change comes in the second installment. This time you calculate your interest on the total amount of principal and interest (£500+£50 = £550), and it’s 10% would be £55. Similarly, for the third installment, the base to calculate compound interest would be £605, and it’s 10% would be £60. This way, the loan taken with compound interest takes more money from your pocket as compared to a loan with a simple or nominal interest rate.

Note: The above-mentioned, interest rates are taken as examples to enunciate the ways to calculate interest rates on £500 loans. They do not reflect the interest rates offered by banks.

Other than these broad categories, interest rates can also be categorized into fixed and variable interest rates. Fixed rates do not depend on market fluctuations. It eases for borrowers to plan the installments and budget over the months or years accordingly.

However, the borrower also doesn’t get any benefit it market dynamics make the rates favorable for all. In the case of variable interest rates, gain or loss to the borrower depends on how the market plays out and what are the terms of the contract. Inflation and depreciation of currency also impact the borrower positively.

Are You Eligible?

£500 loans all over the UK are offered through the online mode. Not much of the documentation is required. As an applicant:

• You should be 18 or over that.

• You should have an account in the bank.

• You should be a resident of UK and have a permanent address.

• You should also give proof of a regular income and employment. If you don’t have a steady income, you should have the guarantor who can guarantee the repayment.

• A good credit score is a cherry on the top.

Therefore, £500 loans come as the perfect fit to handle your unplanned emergencies or quick fixes; it is always prudent to manage your budget and debt with efficiency and payback the money as per the schedule.