In many states a legal cap does part of the comparison work for you. In Texas it does not, which makes the APR vs interest rate in Plano question one of the most useful things a borrower can understand. This guide explains what each number measures, how to estimate an APR yourself, and how to compare offers in Plano, Texas.
Quick answer: The interest rate is the price of the money alone, while the APR adds most fees and states the total cost as a yearly rate. In Texas, where no statewide law caps credit access business fees, the APR and the total dollars repaid are the numbers that let a Plano borrower compare offers fairly.
Two different measures
The interest rate is the price of the money itself, usually stated per year, and it leaves out most fees. The annual percentage rate, or APR, is broader. It includes interest and most required fees, spreads them over the loan’s real length, and states the result as a yearly rate. The federal Truth in Lending Act requires lenders to disclose the APR before you sign.
Think of the interest rate as a car’s sticker price and the APR as the price after required add-ons. Only one tells you what you will actually pay to borrow.
Why a Texas payday loan shows a huge APR
Payday and auto title loans in Texas are usually arranged by a credit access business, or CAB, licensed by the Texas Office of Consumer Credit Commissioner (OCCC). A third-party lender provides the money, and the CAB charges its own fee for arranging it. Texas has no statewide cap on CAB fees or APR.
A typical market figure, not a legal limit, is about $110 to $125 per $500 for two weeks. Take $115. That is 23% of $500 for 14 days. Multiply 23% by about 26 two-week periods in a year and you get roughly 600% APR.
You will not pay 600% of $500 on one loan. You will pay about $115. The APR shows what the cost would be if that pace continued all year, which is close to what happens to borrowers who renew again and again.
Why the interest rate alone misleads
On a CAB loan, much of the cost is the CAB fee, not interest. A quote that mentions only a rate can sound modest while the total cost is very high. Ask for these in writing:
- The APR.
- The finance charge in dollars.
- The total of payments.
Before you apply, a CAB must also give you a consumer disclosure comparing its cost with other credit, and it must post its fee schedule. Read both.
Estimating APR yourself
Divide the total cost of the loan by the amount you received. Divide that by the number of days you will have the money. Multiply by 365.
For example, a $15 fee on a $100 advance for one week: $15 divided by $100 is 0.15. Divide by 7, then multiply by 365, and you get about 782% APR. The fee sounds small, but the loan is short, so the yearly rate is large.
Reading the disclosure box
Federal Truth in Lending disclosures use four boxes:
- APR: the yearly cost of credit, including most fees.
- Finance charge: the dollar cost of the credit.
- Amount financed: the money actually provided to you.
- Total of payments: everything you will have paid if you pay as scheduled.
The amount financed plus the finance charge should equal the total of payments. If it does not, ask why before you sign. Our loan terms glossary for Plano borrowers defines other words you may see.
APR on an installment loan
An installment loan quotes an interest rate and may add fees, and the APR combines them. Fees push the APR up most on short loans. Installment lenders licensed under Texas Finance Code chapter 342 have charges set by statute and rule according to loan size, so ask for the exact figures in writing. See installment loans in Plano.
How to compare two offers
- Compare APR to APR, but only for loans of similar length.
- Then compare the total dollars you would repay.
- Do not judge an offer by the payment alone.
- For a CAB loan, ask the total if you renewed once or twice.
A worked comparison for $500
Suppose a Plano household needs $500 for about six weeks. The CAB figure is a typical market cost, and the credit union figure is an illustration, not a quote.
- CAB loan renewed twice: at about $110 per two-week period, three periods cost around $330 in fees, and the $500 is still owed.
- Chapter 342 installment loan: the cost depends on loan size and the lender’s charges, so get the finance charge and total of payments and compare.
- Credit union payday alternative loan (PAL): at 28% interest over three monthly payments, $500 costs about $23 in interest plus an application fee of no more than $20. That is about $43 at most, with payments near $175 a month.
See what it costs to borrow $500 in Plano for more.
A smaller Plano example
A Plano worker needs $400 until a paycheck in two weeks. A CAB loan at a typical $23 per $100 costs about $92, or roughly 600% APR. A PAL of $400 over two months at 28% interest costs about $14 in interest plus an application fee of no more than $20, around $34 at most. The saving is about $58 on one loan, and more if the CAB loan would have been renewed.
PALs come only from federal credit unions and usually require membership, so check eligibility first. See Plano credit unions vs payday lenders.
APR and the renewal question
The APR on a CAB loan assumes you repay on the first due date. If you renew, each renewal adds another fee, so the dollars keep climbing. Texas has no statewide limit on renewals, and terms commonly run from 7 to 180 days. The best question is not only what the APR is but how many times you are likely to renew.
Why the lowest payment is not the cheapest loan
A lender can lower your payment by stretching the term, and a longer term often raises the total cost. When two offers have similar APRs, choose the shorter term you can afford. When APRs differ, the lower APR usually wins.
Write down the total of payments for each offer, cross out any whose payment you could not make in a bad month, and choose the lowest total among the rest.
When APR is not the whole story
APR measures the cost of credit, not the cost of the problem. An unpaid electric bill may be solved with a payment plan that costs nothing; see Plano electricity bill help. For rent or utilities, the Assistance Center of Collin County, 900 18th St in Plano, 972-422-1850, helps eligible Plano ISD and Wylie ISD households and pays the landlord or utility directly. Call to check current eligibility, or dial 2-1-1 Texas.
What lenders must not hide, and who sets the rules
Federal rules require the APR, finance charge and total of payments before you sign. A lender that quotes only a weekly fee or a payment is telling you something; see online lender red flags. Active-duty service members and covered dependents have a 36% military annual percentage rate (MAPR) cap under the Military Lending Act.
Some Texas cities have local rules for credit access businesses. We have not confirmed one for Plano, so ask the City of Plano and the lender which rules govern your loan. You can check a license or file a complaint through the OCCC.
Frequently asked questions
The interest rate covers only the cost of the money. The APR adds most fees and states the total as a yearly rate, so it is better for comparing offers.
Texas does not cap CAB fees, and the fee is charged on a very short loan. A typical market fee of about $115 on $500 for two weeks is roughly 600% APR.
Compare APR for loans of similar length, then compare the total of payments. Use the payment only to check that you can afford each month.
Yes. The federal Truth in Lending Act requires APR disclosure before you sign a covered loan.
Divide the fee by the amount received, divide by the days, and multiply by 365. A $15 fee on $100 for a week is about 782% APR.
No. It assumes you repay on the first due date. Each renewal adds another fee, and Texas has no statewide limit on renewals.
This article is educational and is not financial or legal advice. Before you borrow, confirm the lender is licensed with the Texas Office of Consumer Credit Commissioner (OCCC), and read the fee disclosure in full.