Little short-term loans are a great way to get through when something unexpected crops up. With so many companies offering this sort of finance it pays (literally!) to do your research and compare before committing; find a responsible lender, legislation offers you certain protections when it comes to borrowing money.
A thing to consider when making your decision is the total cost of your borrowing. When getting a short-term loan, or any kind of loan, you need to look at more than just the cost of the lowest repayment rate. The real cost of your cash loan is made up of the loan amount, fees, your interest rate, frequency of repayments and how long the borrowing term is. While the total amount at the repaid by the end of the term should play a part in your decision-making, really you should be looking at what is manageable for you to pay back on a regular basis.
Responsible and upfront about the cost
A good company won’t hide any fees from you and will offer some kind of calculator on their website that tells you up front what the fees and interest will be over the repayment schedule. Check out ours and you’ll see how the interest and fees changes depending on the term. For example, If you are borrowing $1000 and agree to pay it off with 2 fortnightly payments you would be paying a total of $216.66 in interest and fees on top of the $1000 you borrowed, making the fortnightly payments $608.33 each. However, extend out the term to repay over 8 fortnightly payments and you now need to factor in the daily interest charge for a much longer time period, and just with that one small change you’re now paying a total of $612.36 in interest and fees! However, the fortnightly payments for this option are only $201.54 which are much more manageable chunks.
The structure
This is how the short term cash loan is made up; the term of repayments. At Moola, a short term loan has an establishment fee of $25 and an AIR of of 547.5% which means interest is charged at 1.5% per day. Take a longer term and it costs $150 to establish but the AIR drops to only 182.5% or 0.5% per day. Longer still and the establishment fee is $350 and the AIR 51.1% or 0.14% per day. Whether you would rather pay off less each time and more overall or more each time and less overall, the structure of the loan will directly affect this.
Interest
You might have looked at the AIR above and been quite surprised. Yes, it’s high. But this type of loan is not designed to be held over a long period, they are intended to be paid pack in between paydays, which is why the interest is charged daily.
Fees
Every short term pay day loan company has their own schedule of fees. You can find ours here. Common charges you’ll encounter are an establishment fee, annual fees, late payment penalties, fees associated with setting up or changing payments, fees for getting in touch with you, there’s also every chance you could encounter a penalty fee for paying back your loan too quickly so be sure to check for that one. Knowing the amount of fees you’ll be charged is part of how you calculate the real cost of your cash loan.