Advertisements of instant financial help are scattered all over the Internet. An online application takes about two minutes, and you can start spending your money within three hours or at the latest, the next morning. If you visit the office, your loan pays out within minutes.
Most of the fast cash lenders do not perform credit checks, which is extremely convenient if you need money to survive the month, or if you are blacklisted and reputable financial institutions are not willing to help you. These cash lenders offer quick solutions, but often cause consumers drowning in debt.
Fast cash loan lenders usually target the lower-income group. The average cash loan charges 38 percent interest over a period of four weeks, that is to say, $500 add up to $690 and is fully payable within the next four weeks or at the month end. This is a large amount of money to repay at a month end, especially if one already experiences debt and cash-flow problems. The problem occurs when you have to survive the month with almost a third of your income gone.
What happens if you experience another financial emergency and fail to make the scheduled repayment? Using the above example of $500, extra charges for late payment, as well as 38 percent interest will be added, leaving you with an amount of $930 to repay. In many cases, this amount equals almost fifty percent of the consumer’s income.
By repaying such a large amount, it forces you to borrow again. It is easy to end up in the cycle of borrowing and repaying expensive money and before you know it; you are drowning in debt. One can accept that risk comes at a price, but is the consumer and no-one else to blame for this irresponsible manner of borrowing and lending?
A reputable and responsible lender will evaluate a client’s financial situation and credit report in order to establish affordability. This is to protect the consumer from making decisions that can negatively impact living expenses and to prevent the client from drowning in debt. In some cases, consumers are not informed and cannot make educated decisions regarding their finances. Reputable lenders have trained consultants to guide the consumer in the right financial direction.
Reputable and responsible lenders will assess your application and analyze all the information. The process involves determining if you can afford the loan, and if you are able to make the required payments. An important factor that lenders focus on when evaluating a loan is the debt-to-equity ratio.
A debt-to-equity ratio measures the relationship between the capital contributed by creditors, and the capital contributed by shareholders. The debt-to-ratio formula gives you an indication if you can afford a loan or not. You can divide the debt or liabilities by the total equity and to get a percentage you can multiply the answer by a hundred.
Once the loan is approved, the lender and the applicant will agree on an interest rate and a payment schedule. The applicant is required to sign the agreement. It is important to get a clear understanding of all the terms and conditions stipulated in the agreement.
A loan can provide larger cash amounts to pay for events or situations that you cannot afford to pay out of your monthly income. Conditions, credit criteria and fees apply to variable-rate loans and fixed rate personal loans.
The idea behind a personal loan is to obtain money for unforeseen or planned events. It remains your decision, whether to choose a variable rate or fixed rate, and it is recommended that you speak to a consultant and highlight your specific needs. It is always important to make a well-informed decision when you plan on entering into debt.
If you are not knowledgeable about how and when you should make repayments, you may end up paying on the wrong dates or make electronic transfers which will not show on the lender’s records in time. By making late payments you can face additional charges.
Take Control of Your Money
The best solution to avoid drowning in debt is to take control of your hard-earned money. It is a good idea to create a budget. Take all your living expenses into consideration and deduct it from your net income (income after deductions). The balance is called the distributable amount. This is the money available for paying debts every month. It remains a smart idea to save some money every month. Saving for emergencies can prevent you from seeking help at fast cash loans and from drowning in debt.