Text loans can offer a fast solution
to those who need money in a hurry. Once you have signed up with a loan service
provider then all you need to do is send a text or email and a small amount,
typically £100 can be in your bank within minutes.
Whilst text loans can offer an ideal
solution to those who need a small sum of money and fast, they can seem
unattractive when you see what the APR, or Annual Percentage Rate, is. This is
the amount of interest that would be payable over the course of a year and also
includes any fees or other costs associated with the loan.
It is a legal requirement that
lenders disclose the APR of the financial products that they offer. The
intention is that this makes it easier to compare different types of loans and
variances between the amount repayable offered by different providers.
The Annual Percentage Rate for short
term loans such as text loans and payday loans, however, can often be
misleading. Whilst it enables meaningful comparison between long term loan
products, it can cause confusion when it comes to short term loans and cash
advances.
The Annual Percentage Rate for short
term loans can often be a significant amount, for example, it is not uncommon
to see rates of over 4000%. The Annual Percentage Rate is not the same as the
actual interest that you will be charged, however.
Loan providers are obliged to
display the annual amount payable, even if the products they offer can only be
taken out for shorter periods such as a few days or a month. As a result the
interest needs to be compounded (interest is repeatedly added to interest) to
give an annualised measure.
When looking to take out a short
term loan it is often better to look at the full cost of repaying the loan when
comparing products. This will enable you to get a good feel for the products
available and the amount that you will need to pay back without it being
distorted by the Annual Percentage Rate.
It is important to bear in mind that
short terms loans such as SMS loans can be very expensive if you do not pay
back the amount owed within the stipulated period of the loan. These products
are not designed for long term lending so if you can't afford to pay then back
once you get your wages then they may not be the most appropriate product for
you.
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