Low fee short-term loans are commonly referred to as payday or title loans due to the simple terms under which they are issued and their availability. These types of loans are often for amounts of less than $500 and are most commonly used to cover one-off unexpected expenses such as untimely car repairs or medical treatment. Low fee short-term loans however if not properly managed and not fully understood can actually have significant expense associated with them over the long run.
The concept of this type of loan is one of easy access and readily available funds to be provided to consumers. According to the loan terms they actually can be low fee if paid on time without any kind of delayed or missed payments. The term low fee does not however apply directly to the Annual Percentage Rate also known as the APR. So for example, if a payday loan is taken out for $100 with interest and fees of $10 and it is due payable in full in two weeks, technically it could have an APR of hundreds of percent in interest instead of just 10%. This is a misconception however because this type of loan should never be paid back over the course of a year.
Where consumers can get in trouble with these type of low-key short-term loans is when they default on a loan or take longer than specified in the contract to repay the loan. If after 14 days the hundred dollar loan has not been paid in full then compound interest and additional penalties will be added to the principal balance. The longer the loan goes unpaid, fees and interest get applied to the principal and compound over time leading to exponential growth. Annual percentage rates of 400% and 500% are not unheard of and can lead to significant financial consequences.
What makes these type of low fee short-term loans attractive is the ease of qualification and the fast turnaround time. Most consumers do not need to pass a credit check or background check in order to qualify. In fact, payday loans and title loans require only a job or car title respectively to qualify which can lead to immediate disbursement of funds which is especially important in case of emergencies. Just because a short-term loan can be obtained easily doesn't make it any less important than a mortgage or auto loan. A contract is a contract and terms which have been agreed upon by both parties must legally be honored and are binding.
Whether or not a low fee short-term loan is appropriate for you is dependent on your current financial situation and your ability to repay the loan under the agreed upon terms within a specified time. If managed correctly short-term loans are as viable an option as any other type of loan and should be considered especially for individuals with limited financial resources. Make sure to thoroughly read the contract and make copies of all signed documents to retain for your records should there be any complications.
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