Fast money sources are almost always bad money sources and there are many reasons why you should stay away from them. Companies or even individuals that are in the business of providing someone with quick cash will often have high interest rates or additional fees that you were unaware of. It’s important to use long-term sources of money so that your financial standing is upheld not only now, but in the future as well.
High Interest Rates on Loans
Payday loans and other types of fast money sources have extremely high interest rates. Some of the lowest payday loan interest rates in the nation are still well over a 100% APR. This high of an interest rate is okay for a short-term loan that you intend to pay back quickly, but if you fail to pay off the loan, the your finances will be in jeopardy and you will fall victim to what is known as the “payday loan trap.” The trap is essentially where you become unable to repay the first loan that you had taken out and this forces you to take out additional loans in order to make payments on the first. This is a vicious cycle that a lot of payday loan providers use to make enormous amounts of money off of their customers.
Fast Money Sources Accept Anyone
A fast money source like a payday loan company will often accept any customer that walks in the door. The problem with this is that there is no credit check, no employment verification and no guarantee that the customer actually has the financial ability to repay the loan. If the customer is negligent with their actions and takes out a loan, knowing they probably won’t be able to repay it in time, the high interest rate of the loan would quickly accumulate in cost and the customer would have to pay very high fees. Even worse, they may have to take out additional loans in order to afford this first one. To a fast money loan company, this is actually a good thing. The more customers that they have barely staying afloat and struggling to pay off their loans, the more money the company makes. Research has shown that fast money sources make more money off of returning customers than they do new customers.
Fast Money Sources Must Be Repaid Quickly
With most fast money sources, your loan must be repaid within a very quick timeframe. The downside of this is that there is no room for error. If you are unable to come up with the funds, then you will experience financial crisis. With long-term loan providers, the repayment terms are much more flexible. Financial institutions and banks will provide a low monthly payment that will serve as your minimum payment. Should you decide to pay more than this and pay off the loan quicker, you can. In doing so, you will accrue less interest and the total money lost will be much less. However, if you don’t have the money, you can always make do, with just paying the minimum amount. With fast money sources, this is not a possibility and you are subject to the terms of the loan provider.
Fast money sources can seem like a smart idea, but they can be risky and dangerous if you are not careful. Prior to signing an agreement with a short-term loan provider, be sure to crunch the numbers and do some comparisons. By comparing one loan provider to another, you can see who has the better interest rate, what the terms are for your loan, how much flexibility the loan provides and whether or not the loan will provide you with enough money.
Noel Finley works for FastCash.org a company that provides information about short term lending.