Anyone who is short of cash can take out a payday loan to bridge that period. But don’t go ice overnight when looking for a loan. By choosing the right formula, you can save hundreds or even thousands of dollars.
Loans come in all sizes and shapes. Those who want to install a solar water heater can apply for a green loan. House hunters can then again take out a mortgage loan. Although these loans are not available to everyone. Anyone who wants to take out a specialized loan must have the necessary documents. For example, with a renovation loan, you must be able to prove that you are going to use the capital for a renovation. Anyone who cannot submit an offer or invoice will not receive a specialized loan.
Benefits of a payday loan
But what if you want to buy new furniture, or have caught your eye on a giant television? In those cases you can take out a payday loan. Unlike, for example, a car loan, you should not be able to prove what you need the capital for. Although certain restrictions are laid down by law. For example, you may not use the money to finance an illegal activity or to buy a pet.
The freedom you get with a payday loan is accompanied by a higher price tag. While many lenders usually charge a uniform rate for a specialized loan, that of the payday loan is highly dependent on the duration and the loan amount. It is therefore not easy to find the cheapest product.
Play with the duration
The maximum duration of a loan depends on the loan amount. That is legally determined. Depending on the loan amount, the maximum duration is between 24 and 240 months. As long as the lenders respect the above limits, they can determine themselves how long the duration is. Many lenders do try to steer you in a certain direction. They do this by granting advantageous rates if you keep your loan within certain limits.
Those who want to enjoy the lowest rates should best limit the term of their loan to 48 months. Different lenders are then prepared to have the rate fall below the 6 percent limit. That is the case with no fewer than 12 of the 22 lenders (with an amount of 20,000 dollars), our comparison shows. If we extend the term to 72 months, that number will decrease to 4. The number of available loans will fall to 18, incidentally.
Match duration to monthly budget
Our calculation shows that in some cases you can save 1,500 dollars or more if you shorten the term for one year.
We take Cream Bank’s payday loan as an example. Cream Bank applies a rate of 4.9 percent for loans with a term of up to 72 months. The rate increases to 6.5 percent when someone opts for a longer term. In this example, anyone who borrows 20,000 dollars and spreads that loan over 84 months (instead of 72 months) sees the price tag increase by more than 1,700 dollars. Discover here how much you can save by playing with the different durations.
In the example above, the monthly repayment increases by 25 dollars if you opt for a shorter term. In this case we can state that the final saving outweighs the limited increase in monthly repayments.
The monthly repayments are considerably heavier if you drastically shorten the term. Therefore always check whether the rate drops sufficiently if you opt for a short term. Also calculate whether the higher monthly installments do not take a big bite out of the family budget.
Watch out for small loans
Small loans are not interesting for the lenders. Due to the legal limits, the repayment period is limited. This means that the lender receives less interest. The longer the duration, the more interest it accrues. They try to discourage small loans by applying higher rates.
For example, anyone who borrows 2,000 dollars must repay the loan within a maximum of 24 months. Only two banks apply a rate that falls below the 5 percent limit in this situation: Beobank with the Comfort loan Plus (4.99%) and Buy Way (4.89%).
With the most expensive players you pay 12.5 percent for a small loan. Whoever borrows 2,000 dollars and spreads the repayment over 24 months can save 150 dollars if he trades the most expensive loan for that of Buy Way.
Consider a credit card
Who wants to borrow a smaller amount can apply for a credit card. If you opt for a formula whereby you repay the borrowed capital in the following months, you do not have to pay any interest. With other credit cards, it is then again possible to spread the repayment over time. In that case you owe interest to the lender. The annual cost percentage can go up to 14.49 percent.
Many credit cards are accompanied by many extras, such as travel insurance, damage insurance, extended warranty. Do you want to know which credit card suits you best? Make the comparison here.