We've all had times when unexpected expenses pop up out of nowhere, like a car repair or medical bill. And suddenly, we need cash quickly before the situation gets even worse or becomes costlier.
Quick loans can provide a welcome life raft in these desperate money moments. Getting your funds in just a day or two allows you to cover urgent costs and keep your head above water financially for now.
But quick loans come at a price - high interest rates that can add up over those short loan periods. Even if the loan is just for a few weeks, the yearly percentage rates (APRs) make quick loans way more expensive than regular bank loans.
It's essential to understand how those high APRs impact the total cost of a quick loan. Let me break it down with some examples so you can decide if the speed of getting money fast is worth the added interest costs.
It's crucial to understand the total cost of borrowing before taking out a loan. Remember, always borrow responsibly and consider whether a quick loan is the best solution for your financial situation.
The APR Trap
APR stands for annual percentage rate. It shows the yearly interest charges rolled into whatever loan you take out, including any upfront fees.
Quick loans SEEM affordable when lenders quote simple interest rates like 15% for a two-week £500 loan. But then they load on extra fees, and most importantly - the interest compounds rapidly over those two weeks!
That 15% rate could equal a skyrocketing 400% APR when calculated over a year's timeframe. A £500 two-week loan could cost over £800 to repay if you kept re-borrowing at those levels for 12 months straight.
This is how quickly loans become predatory if you can't repay them immediately. Taking one £500 quick loan at 400% APR doesn't seem too grimy, but getting trapped rolling it over every two weeks will financially drown most folks fast.
Borrowing a sum over a short period at a high APR could result in a total amount payable significantly higher than the original borrowed amount, including any fees. This example is for illustrative purposes only and reflects the potential cost of borrowing at a high-interest rate. Actual costs will vary based on the loan amount, term, and APR.
The Too-High APR Danger Zone
Personal finance experts generally recommend avoiding quick loans with APRs over 35-40%. Even borrowing for just a few weeks is unaffordable for many average folks at those levels.
In a loan for bad credit, APRs, unfortunately, tend to start at 30-35% on the low end, with some scummy lenders quoting triple-digit rates of 200% or even higher for single-digit loans.
Those are the complex truth numbers where rational folks must pause and calculate if the short term money is worth the long-term triple-interest haircut before signing loan paperwork.
Warning: Late repayment can cause you serious money problems. For help, go to moneyhelper.org.uk. Consider other forms of financial assistance and advice before opting for high-cost short-term credit.
When Sky-High APRs Could Make Sense
The APRs on a loan for bad credit look awful on paper, no doubt about it. But the speed of getting emergency funds is why folks risk them in dire situations.
If waiting two extra weeks could mean eviction, losing transportation to work, getting utilities shut off, etc., overpaying interest for two weeks could provide a financial lifeline, preventing way worse money fallout.
Quick loans allow desperate borrowers to purchase time before their money emergency spirals entirely out of control. The ultra-expensive interest IS the price to earn that breathing room to regroup.
Would paying £100 interest on a £500 two-week loan hurt? Absolutely, but it's much cheaper than missing rent, having your car impounded, or getting fired for lack of electricity!
So, ultra-APR quick loans can make sense if they provide a temporary cash buffer, avoiding downward financial spirals that are costlier than their interest fees.
Before taking on any costly quick loan for bad credit, explore all available financial assistance options. This can include asking family or friends for help, checking for community financial resources, or seeking advice from free financial counseling services.
Strategies to Afford the Speed Premium
Assuming you take the plunge on a quick loan's APR solely to access emergency funds ASAP, there are tactics to deploy to minimise those interest charges.
First, only borrow absolute minimum amounts and stick to the fastest repayment plans that match your budget's limits. APRs skyrocket as loan sizes and terms increase.
Next, avoid excessive rollovers beyond the initial short-term at all costs! Even solid 30% APRs turn toxic orbital debt if you let compounding interest continually reapply.
Also, actively work to improve creditworthiness so future quick loan needs (hopefully rare) can score you lower APRs. Maintaining subprime credit is a surefire way always to pay the usurious lenders' absolute price maximums.
And finally, quickly replenish your emergency funds once the initial cash crunch is over. Avoid resorting to a costlier loan for bad credit by having your own rainy-day buffet ready next time.
If you're considering a quick loan, ensure you're informed about all terms and conditions. As a credit broker, we provide options from a range of lenders, aiming to find a suitable match for your needs.
A Brutal But Sometimes Necessary Cost
Lenders with loan for bad credit are providing a service that allows customers to rapidly access borrowed sums that could prevent them from free-falling into worse financial destitution. It's an emergency band-aid with a sky-high price tag.
APRs reaching triple-digit percentages are indeed brutally usurious. But for severely cash-strapped consumers fighting against employment termination or utility shut-offs, those expensive interest rates can buy the ever-critical time needed to recover before secondary fallout exponentially piles on even higher overarching costs.
In Conclusion
Quick loans aren't a long-term affordability solution - they're intended as rocket-pricey stopgaps for temporary money shortages. Understand the shockingly high APR realities while appreciating the short-term security they can provide to desperate folks requiring instant cash infusions.
So yes, the APRs are grossly high by usual borrowing standards. But that agonising interest price tag may not seem so outrageous in those dire "break the glass" moments demanding cash ASAP regardless of long-term cost for survival's sake.
While quick loans can offer immediate relief in financial emergencies, they come with high costs. Before making a decision, explore every alternative and consider the long-term impacts of high APR loans on your financial health. Independent financial advice can be invaluable in these situations.
"Warning: Late repayment can cause you serious money problems. Always consider if borrowing is the right option for you and ensure you can repay your loan." For help, go to moneyhelper.org.uk.