You’ve all seen the TV adverts on short term loans. Targeting people who need some money for a short term period and you could receive the money in your bank within the hour without a credit. You can see it appeals to some customers, but at what cost!!!

Watch any channel these days and you will see adverts from these companies all the time. Get a quick decision on a short term loan from 2-30 days. Yes they can be helpful but does the customer actually realise how much they will be paying back. The purpose of this article is to educate those considering taking out a loan in the near future. I will be talking about the APR rates of various companies, I’m sure there and hundreds of these companies out there, I will only be talking about a few of them.

I am trying to educate my own students so they understand how much they will be expected to pay back if one day they were in a situation where they needed such a loan. Now I’m no expert in this field, but I am capable of doing the required maths which some people may not be able to do. So I wouldn’t be fooled by these companies and would not want anyone to be fooled by these adverts they see. I hope you find this useful.

The companies I will be analysing are:

Benefits of Short Term Loans

• Get money fast into your bank account, some within 10 minutes
• No credit check and some offer 100% acceptance
• Work on a trust system, they lend you a small amount initially and once you pay that back, they increase the amount they can lend you
• With many you MUST pay back the full amount within 7, 14 or 30 days. So limiting the amount of interest you could be charged. Others will allow you to pay back over a year

What is APR?

APR is the Annual Percentage Rate. This is the amount of interest you would pay on a loan if you were paying it back over the term of one year. To put this into context, the APR rate I pay on my mortgage is 4% and some of the rates above are 4000%.

Analysis of borrowing over time

Although most companies require you to pay the money back within a short term period, others allow you to pay over a longer term. I will be analysing the costs over borrowing for 2 days, 14 days, 30 days 6 months and 12 months. Although some of these companies don’t allow you to borrow £1000, I will be using £1000 as an example because it is easier to relate to the values.

Someone borrowing £1000 for just 2 days will need to pay back £305 interest. Surely at this rate it cannot be of benefit to anyone, yet thousands of people are using these companies each day. If you were paying this back over the term of one year, you would owe them over £55000 interest. The analogy I used on my students was if I let you borrow £10 from me, you would owe me £567 in a year’s time, would you want to borrow the money?

Conclusion

I would avoid any of these companies at all costs, don’t even go to these companies as a last resort. Surely you can live without the money than have a huge amount of interest to pay back. Should you need to borrow money for a good cause, there are a few options available:

• Ask the bank for a loan, their rates will be 20% at most
• Visit a pawn broker
• Borrow from friends and family, as long as it’s a good cause I’m sure they will help you.

Hopefully the government will do something to regulate the rates these companies charge very soon. But in my opinion I don’t think they will, because these companies are making millions in profits each year which the government will benefit in with taxes.

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Please share this information with anyone who you feel may find it useful. At date was correct at time of publishing on 22^nd February 2012. Please let me know if you found this article useful.