There are times when you need cash to sort out an emergency financial need such as paying your tuition, repairing a broken down car, paying regular bills or medical expenses. During this time, you need to get the cash in the least time possible. However, at times, you may be limited to get that cash from the banking institutions and other lenders and therefore, you have to opt for the short term emergency loans.
There are different types of emergency loans such as payday loans; cash advance loans, college loans, home loans, and even bad credit loans. The aim of the short term loans is to enable a borrower get the loan within the least time possible and be able to fix very pressing financial emergence need. This is one of the reasons why these loans are not designed for everybody.
If you have bad credit, it is most likely that conventional banks will shy away from offering you credit facilities. This means that you are limited in accessing credit facilities from your bank if you have suffered bad credit. In addition, banks may not be able to release the funds in the shortest time period when you are in dire need to solve an emergency.
Because the short term emergency loans such as payday loans and bad credit loans are designed for a group of people who may not access the traditional credit facilities, they come with their risks or uncertainties. These loans attract high interest rates and if they are not checked, they can result to further financial constraints on the borrowers.
These loans attract high interest rates ranging from $400 to $600 per year or even higher. For instance, a borrower obtaining $100 as payday loan payable within 2 weeks would pay an interest of $15. The annual percentage rate for this loan would be 26 x 15% and this gives a total of 390%. It is this high APR which makes these loans quite costly.
If you are taking the loan, you need to ensure that you have sufficient income, which can enable you pay the debt in time and also have some extra money at your disposal to meet other expenses such as food, rent, bills and transport until your next pay check. One danger with the short term loans is that they attract high APR that can early plunge the borrower into vicious cycle of borrowing.
People find themselves hooked into a cycle of browsing. The amount of money that can be advanced to a borrower by a lender is also limited. In order to protect the interest of consumers, some states have put in place regulations that govern how emergency loans are disbursed to individual borrowers.
In Alabama, the terms set for payday loans are between 10 to 30 days and interests are regulated at 17.5% of the loan. The average amount which a borrower can borrow is $500. In this state, the law stipulates that a rollover can be allowed with the same customer after the initial loan period. This means that after that rollover, the loan is due and payable. However, if the borrower is not able to repay the loan after the rollover, an extended payment option may be granted of four equal monthly installments based on the outstanding balance.