At some point in their life, everyone will have to take up a loan. However, the difference is the reason behind taking that loan, and thus the way one will spend the money they have gotten. Some take up loans to get the necessary capital to invest in various economic sectors, while others do so to make sure that they have enough liquid cash to make it to the next payday.
Consumer debt, essentially, is the latter. It is the money borrowed, and ergo the debts incurred, to purchase consumable goods or those that do not appreciate in value, as opposed to investing the money. A quintessential example of this is the short-term loan.
Short-term loans are typically taken to remain afloat, see the next payday, or handle emergencies that one had not foreseen. When handled properly, they can be the saving grace when in time of need, the cavalry when all hope is lost.
However, this is not always the case. Short-term loans have become so prevalent in the market today that anybody can get one. This also means that whenever someone feels the slightest strain on their pocket, they can simply apply for a short-term loan and their worries will be palliated for the meantime.
This fiending for further finances has resulted in the growth of personal loans and debts, which begs the question, are personal loans the fastest-growing consumer debt?
It makes sense to think so. For one, since they are so easy to get, the onus is on the consumer to try and mitigate their taking of loans, which is a demanding task, close to being impossible without the proper self-control.
Moreover, short-term loans are the best way for banks to make money. Since they offer a shorter period of return on investment, and the consumer still has to guarantee that loan, the banks know that they will get their money back whatever happens after you take a short-term loan.
Notwithstanding, they still charge higher rates of interest as compared to long-term loans. Long-term loans tend to be of larger amounts, so the bank can acquiesce a bit on the interest charged. However, since short-term loans are usually for smaller amounts, the bank has to increase the rates charged a bit.
Take, for example, the Promise Easy Loan.
When you take a loan of 100,000 Hong Kong Dollars, you are charged a rate of 4.49 percent per annum. This results in a total of 2,400 Hong Kong Dollars. Another example is the UA i-Money Express Online Personal Loan. For the same amount of money, 100,000 Hong Kong Dollars, you will be charged an interest rate of 6.18 percent. Ergo, the payable interest will be 3,240 Hong Kong dollars.
There are, of course, loans that have much lower rates, such as the GoFlex Personal loan, that will give you 1.68 percent interest. However, these loans tend to be the most dangerous, and the devil, as is usually the case, is in the details.
When signing to get the loan, more often than not, you will not check the blueprint. Most of the time, in need of the money, the consumer peruses through the document, signs it, and waits for the funds to be moved to their bank account or handed over to them.
However, they don’t know that the loan contract details have some malicious clauses, most of which take effect after payments have been deferred. These clauses may, for example, stipulate that the interest rate will change after payment has been missed, or that compounding interest will begin after several payments have been missed.
This is the reason why people take up small personal loans, only miss a couple of payments, and at the end of the day, are surprised to find that the loan amount has increased almost exponentially. However, since they had signed the contract, they cannot do anything about it except paying the amount they need to pay.
This is not to say that personal loans should be avoided. On the contrary, if you are keen enough and take the loans only when you absolutely have to, they can work wonders for your life. To enjoy the utmost benefit from personal loans, you should make the necessary considerations and there will be no regrets. Are you wondering where to get a short-term loan? Check no more because Moneysmart is there for you.