Ever considered taking out payday loans? Ever looked at the interest rates and thought that they are not for you. While the interest rates are considerably higher than many other forms of lending, you could end up paying less in the long term. Here are some reasons why the interest rates are not so bad.
Credit cards and overdrafts often have smaller rates of interest. However, you have a longer period of time to pay the money back – sometimes indefinite while the account remains open. So, while you pay less each month, you could end up paying more in the long term. This does not happen with payday loans because you have a set due date for repaying the money.
Long term personal loans and mortgages have very low rates of interest, especially compared to payday loans. However, you could end up paying more on long term loans because of the longer period of time to pay all the money back. Short term loans are usually available until the next payday so you only have one month of interest to pay back, which is usually set as a fee and you will see the amount before you accept the loan. You could end up paying thousands extra with a long term loan.
Payday loans only allow you to borrow a small amount – and you should only borrow an amount that you can afford to pay back the next month. This is not the case with credit cards, overdrafts and long term borrowing. With the other methods, you can usually borrow more than you earn in a month, to pay back over a longer period of time. The interest rate is applied on the higher amount, so you end up paying more in the long term. By taking out a small amount for a month, the higher interest rates really are not that bad.
The payday loan companies usually have set fees for the first month of borrowing. The interest rate is not applied until afterwards, if you fail to pay the money back. The fees that you pay are usually less than if you have to pay unapproved overdraft costs or over the limit fees for a credit card. The full amount that you need to pay back will be determined before you accept the terms of the loan so there are no hidden costs along the way. You can also pay less if you decide to repay the loan early, which will not happen with other forms of lending.
While the interest rates may be high, you will find that the amount you need to pay back is significantly less than other forms of borrowing. However, before you accept this fact, you should look into the forms of borrowing available. This will help you determine that payday loans are right for you.