When you are facing financially difficult times, and you do not have other options available, a quick money credit may seem like money dropped from the sky. However, although they are easy to obtain, they are often difficult to pay. You could end up in a worse financial predicament than you were before leaving the first loan.
What is a quick money loan?
Like any loan shark, companies that offer quick money loans are always available and waiting to lend you money when you need it. If you are behind in the rent, you need to pay the bill for a service, or you saw something in a showcase of a store that you really liked, these people are eager to give you the cash you need.
You do not even need to check your credit. If you want a quick money loan, you only have to be at least 18 years old, a job, and a bank account. If you do not have a job, some lenders will lend you if you are receiving social assistance, because it is a guaranteed income. They hunt people financially desperate.
Normally they will lend you up to 60% of your next salary. However, you must return it to your next pay day, usually between two weeks to thirty days, along with interest and administration fees. All you have to do is give them a deferred payment check or your bank information so they can collect the money when your payday arrives.
Costs associated with quick loans
The main problem with fast money loans is that they come with extremely high interest rates, even higher than those associated with credit cards. Depending on where you live and what company you are dealing with, interest is normally between 15 pesos and 21 pesos for every 100 pesos loaned. On top of all that, the rates will be between 15 and 35 percent of the total amount borrowed.
This is enough money to repay more than they lent you, in just two weeks. Although assigning a nual rate equivalent to one of these loans is somewhat misleading because they are short-term loans, if you had to do so, it would be well above 500%!
Understanding the real cost of a quick money loan
Now that you understand that in the world of quick money loans, 100 pesos is not really 100 pesos when it comes time to pay them back, you need to realize that it is most likely that you will never borrow 100 pesos. You can borrow up to 60% of your next pay, and when they offer more, you are likely to take more.
So now you are facing a loan of around 200 or 300 pesos with your adequate interest and fees applied. You are happy because you have the money you need. The problem is that when the loan expires in two weeks to thirty days, you will have to pay it back. However, after you have returned it on the day of payment, you will be bankrupt again.
Now that you are bankrupt again, you need to extend it or request another loan. So the process repeats itself again. If you are in a locality where you can not extend a loan, you can simply ask for another loan. If you need a quick money loan to pay off your original fast money loan, you have to get the loan from another lender.
Before you know it, you will be captive of an endless cycle that becomes almost like an addiction. As fast as you pay a loan, you’ll be asking for another. Finally, falling prey to the fast cash loan cycle will create a financial burden worse than the one you originally had before asking for the loan.
When you all get billed and can not return more loans or loans, you will be hit by the overdraft fees and the costs of having no balance in your bank. Finally, the lender could send you a collection agency, or take you to court, and both will negatively impact your credit score.
Why fractional loans are cheaper and a better alternative
Fractional loans are cheaper and a more realistic alternative when you need money quickly. They allow you to borrow more money, but they have lower interest rates and payments than those of quick money loans. The best thing is that you can return it in a prolonged period of time instead of a large payment.
These loans are normally returned on your paydays or monthly in a specified time that is usually between three months and a year. With smaller payments and a prolonged time frame are much more affordable options because you will be able to make the payments and you can still afford all your monthly expenses.
Returning a fraction of the loan each month is much easier than returning a quick money loan at one time. While you make your monthly payments, when the loan time ends, you will have finished and you can get out of the loan without repeating the cycle. If your financial situation is reversed at some point during the term of the loan, you can return it without penalty.
When you’re in a bad patch and you need money quickly, quick money loans may seem like the answer to your prayers. But before you accept the money, you should think about the real cost of taking that loan. Most of the time, a fractionated payment loan is much cheaper and a much better alternative that will prevent you from falling into the cycle of indebtedness.