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Is a short-term loan up to $ 10000 worthwhile?

Is a short-term loan up to $ 10000 worthwhile? Or are they just usury loans that make you more like the offer in the picture?

There are many short-term loan offers on the Internet. A number of non-bank credit companies offer short-term loans (usually 7 – 28 days) for $ 1,000 – 10,000 (bids vary, sometimes more is offered, usually a maximum in the range of 12 – 15 thousand). These loans seem tempting at first glance. Usually, you do not need to receive a receipt, sign a contract, or walk or send copies of documents. In addition, for a loan of money you pay at first sight only a small fee of several hundred crowns. But are such short-term loans worthwhile? Aren’t they just hidden debt traps?

Will a short-term loan worth a few thousand crowns pay off?

Will a short-term loan worth a few thousand crowns pay off?

The principle of these short-term loans is usually the same or at least very similar. Register on the lender’s website. As a rule, only basic information such as social security number, ID number, bank account number and your address are required. Exceptionally, you must provide information on your income or employer.

After completing this basic sign-up, you will still need to send a $ 1 “sign-up fee” from your bank account somewhere (to make sure your business is really your account). Elsewhere, this bank account verification is not required.

Once registered, you can borrow money right away. At least a part of the operators of these short-term loans will allow only the amount of 1 – 2 thousand crowns for the first loan. This prevents dishonest clients from borrowing a large sum right from the start.

There is no interest on short-term loans – they are not classic loans. You only pay a fee, which is usually $ 100 – $ 250 for every $ 50 per week. For a loan of 2,000 $ for 2 weeks you usually have to return 2200 – 2500 USD. So you pay 200 – 500 $ for the loan. That doesn’t look so bad at first.

APR in the order of several thousand percent

APR in the order of several thousand percent

However, these short-term loans have an APR (annual percentage rate of charge) of several thousand percent. For example, the Finnish Ferratum loan has APRs ranging from 3113% to 8348%. For others it may be slightly less (for example, GB online loan has APR “only” 1149.76%) for others and much more.

For current bank loans, the APRC is usually in the range of 10 – 30%. Other long-term non-bank loans also have APR under 100% (for example, Provident non-bank cash loan has APR 70.93%).

Are these usury loans?

Are these usury loans?

At first glance, a loan for which you pay such high fees looks like usury, a usury loan. If you borrow repeatedly the whole year, for example, 1000 $ for one week, so you can pay even 10000 $. So 10 times more than you actually borrowed the whole time. I.e. annual interest could thus be even 1000%.

However, according to the law, the amount of interest is not the only criterion for assessing whether or not it is a usury loan. According to the law – to be usury – it would have to be a condition that the borrower arranges it under duress, under the influence of intellectual weakness or without full knowledge of the actual costs. And all companies offering these loans are careful to inform their clients in advance about how much they will pay for the loan. According to the law, they are not usury loans.

A short-term loan, a few thousand that will cost you a lot

A short-term loan, a few thousand that will cost you a lot

While these short-term loans may be justified, there are situations in which they could be considered. But it is definitely not good to use these short-term loans as regular loans. Renting 10000 $ and going on holiday is definitely not a good idea.

The risk of these loans is that if you fail to pay on time, you will quickly start charging very high fees. Often even 100 or 200 $ for each day of delay. If you are late in paying for a month, the loan of $ 1,000 can suddenly be a debt of over 7 – 8 thousand dollars.

These short-term loans are usually also secured by a promissory note or other form that allows the lender to instantly enforce the debt. So if you are not 100% sure that you will return the money in time, you should avoid this type of loan by far.