The Truth About Payday and Short-Term Loans
You've seen all the ads: "Get cash now! Fast money! No credit required!" The allure of quick cash is what makes the payday loan industry go round. What they don't tell you in those ads, though, is that some short-term loans have an APR of over 500%. If you aren't careful, a $500 loan could end up costing you thousands.
What You Should Know
Read the fine print. Some loans may have reasonable interest rates, but instead have astronomical fees. Lenders are required by law to disclose fees and rates associated with their loans. The key is to determine how much it will cost you per year to borrow the money. This is what's called the true cost of the loan. Knowing the true cost of a loan will allow to compare it equally with other loans.
Types of Loans
There are other types of loans you should look at when considering a short-term loan. Title loans typically offer lower rates as they are secured by the title to something you own, like a vehicle.
Signature loans can be acquired through your bank or credit union. These loans, however, generally require good credit and take longer to approve. If you own property, you can often take out an equity line against the property equity. Overall, these loans are typically sought for longer terms. Payday loans, on the other hand, are usually sought with the goal of paying them off within 30-60 days.
Should You Get a Short-Term Loan?
This is, of course, a personal choice. If you are short on cash and looking to borrow some money, the best approach is to find the lowest cost of borrowing. If having $500 is the difference between feeding your family or not, the loan may be very helpful. We all encounter difficulties in life, and short-term loans can be a useful way to get back on track. It is important, however, to consider other options like signature or title loans before committing. And be sure to look at the fine print. That way you know what to expect.