You think everything is going well, and then your car breaks down. Next thing you know, your dog’s become sick and you’re about to face a hefty bill from the vet. It’s going to cost a couple hundred to fix, and payday isn’t coming until next week.
The first thing you think about is probably a short term loan. If you pay it back on time, you’re not going to be affected too badly, right? Well let’s look deeper into the many disappointments of short term finance.
The Interest Rate is Daylight Robbery
When you’re stuck in looking at only the plus-sides, it’s sometimes easy to brush off the fact that you will be paying an interest rate which is exceptionally high. When you take out the loan, it’s never made obvious how much you’re actually paying.
Let’s think about this for a minute; if you’re considering a micro loan, you’re probably already low on cash. Having to pay back the additional interest can be a pretty devastating blow in terms of finance.
The Loan Period is Shorter Than You’d Expect
With most payday loan providers, the maximum amount of time that you can borrow the money for is about thirty days. The longer you borrow the money, the more you have to pay – this means that you’re probably going to try and go for the lowest loan period that you think you can handle.
If, and in most cases when, you miss the first day of repayment, you’re not going to be too happy. You’ll be hit with huge charges that you didn’t even know you agreed to. Not only that, but most payday loan providers will charge you a shocking fee to rollover the loan for another month (or however long your original loan period was).
Research has proven that payday loans are essentially a ‘debt trap.’ Using it to cover yourself will most likely sabotage your idea of living a financially-stable future. Living with debt isn’t a good feeling, no matter how long it lasts.
Your Credit Rating
Paying back a payday loan before any deadlines won’t do any harm to your credit rating, in fact, sometimes the complete opposite. However, if you don’t have that last few cents to pay back the loan on time, you’ll be faced with damage to your credit rating.
Even if you do pay your loan back on time, there’s a lot more problems than you may think. If you ever need to get a business loan, a mortgage or any other kind of funding or support, these lenders may see your payday loan as proof that you are financially unstable. Unless you’re able to prove to lenders that the loan was a one off for a genuine reason, they might not want to give you any support.
Short Term Loans Are Never a Good Idea
As you can now see from this post, it might be a better idea to keep a very large distance away from payday loan providers. Most people see them as nothing more than a quick and easy way for companies to draw every last penny out of people in need, and they’re absolutely right.
It might seem like a good idea to take out a payday loan, but it’s generally pretty difficult to get out of the mess that they often leave you with. If you have no other option but to take out any short term loan, ensure that you meet every repayment deadline. You’ll also want to read every single word in the small print – that way you know exactly what to expect.