Things to look out for when taking out a short term loan
Published Wed, Nov 21, 2012 Updated Tue, Feb 16, 2021
If you’ve ever been strapped for cash well before payday, you’ve probably been tempted by those ads offering quick, convenient, no-collateral payday loans. Payday loans can be immensely helpful if you’re short on funds and you’ve still got days or weeks to go before payday. On the downside, however, payday loans are not all created equal.
Depending on the lender, some payday loans impose penalties for early repayment, or may even place restrictions on how quickly you can access the money. As with any type of loan, it’s crucial to read all the fine print before you sign anything, but sometimes the fine print may include clauses that are virtually incomprehensible to the average borrower.
If you’re considering taking out a short-term payday loan, here are some factors you should first consider:
Many payday loan companies impose stiff penalties on early repayment. Although this behavior may seem at variance with common sense (after all, don’t they want the loan paid back promptly?), it actually does make sense when you consider how much interest money they’re liable to lose in an early repayment.
When you’re taking out a short-term loan, make sure you choose a lender that doesn’t impose an early-repayment penalty. If you’re able to pay your loan early, you’ll manage to save quite a bit on interest – and a reputable lender will appreciate your quick repayment.
Cost of the actual loan
Although you know the exact amount you’re asking for, your loan is going to cost more because of interest fees and administration and transaction charges. Some disreputable lenders take advantage of the situation by charging extremely high interest rates and exorbitant administration fees – all charges that you may not be aware of when you sign your loan agreement.
A reputable lender, however, will be completely up-front about all charges and fees that apply to your loan, so that you’ll know exactly how much it’s going to cost before you sign the agreement. That’s why it’s important to choose a lender that offers complete transparency about the total cost of your loan. They’ll go over the entire APR which, with a good lender, will be comparable to the current prime lending rates – and they’ll also thoroughly explain any administrative or transaction charges on the loan.
Speed of payment
Even though you need the money right away, some payday lenders impose a time delay on how quickly you can access the money. Before you sign a loan agreement, ask the lender exactly when you’re going to get the money. If there’s a prolonged delay that inconveniences your plans, find another lender. A reputable short-term lender should be able to provide 24/7 service, accessing your loan for you on the same day or evening no matter when you apply.
If you need a short-term payday loan, be sure to do your homework first. It’s crucial to shop for a lender who offers you immediate payment, reasonable terms, penalty-free early repayment and total transparency on the cost of your loan. If these important factors are taken care of to your satisfaction, you’ll be able to take out your payday loan with complete confidence.