For many New Zealanders, the idea of losing their income or facing an emergency can be pretty scary. That’s because a quarter of the population, according to the site Interest.co.nz, would burn through their savings in a month, if their primary source of income was lost. If this were to happen to you, you might be tempted to take out a personal, short-term loan to get you through the emergency. These types of loans can provide you with the money you need to get back on your feet, quicker than a traditional loan. However, before you decide to take out a personal loan, you should understand how they work.
The Interest Rates are Restricted
Personal short-term loan lenders are restricted as to how much interest they can charge on their loans. The actual interest rate that you would have to pay on the loan you take out will depend largely on how much you borrow but could be as high as 48 percent. Your interest rate could also change based on the amount of time you have to borrow the money. You can use an online calculator or find out more about your interest rate at PrettyPenny.co.nz. A short-term loan calculator will allow you to use the slider to select how much you want to borrow and for the period, and it will provide you with an indication on how much interest you’ll be charged.
The Interest Rates are Higher Than Other Kinds of Loans
While the restrictions that have been put in place for short-term loans help them to remain manageable, they are a bit higher than most credit cards and personal loans. The interest rate on a credit card will vary, depending on the kind of card you have, but are generally between 9 and 22 percent p.a. Keep in mind, that the interest rate on a credit card is variable, where they are fixed for the short-term loans. Personal loans made through banks also vary, but usually are between 8 and 15 percent. The rate that is charged is dependent on whether the loan is a secured or unsecured loan, that is whether or not you have put up collateral to take out the loan, says Leigh Anthony, a writer at Chron.
There are Other Fees That You’ll Have to Pay
Along with the daily interest rate on your short-term personal loan, there will be fees associated with borrowing money. Short-term loan lenders can charge establishment and monthly/annual fees, even if you keep your loan in good standing. If your payments are late, or you default on your loan, you may also be charged default and enforcement expenses, which will result in you paying more than you borrowed.
Short term loans are great if you are faced with an emergency and can pay the loan back within the specified terms of your agreement. You should only consider taking out one of these high-interest types of loans if you are confident that you can pay the loan back on time.
