Experts suggest drawing a comparison between lenders based on interest rates, the total cost of debt, repayment terms, approval speed and flexibility and lender reputation before borrowing money. A difference of 1% APR can cost you hundreds of euros over the span of a loan.
What are quick loans?
Quick loans are small emergency loans. They have been designed to help tide people over during financial emergencies. When unexpected expenses spring up, your savings might be insufficient to cover them.
Quick loans are small personal loans that are approved the same day the application is submitted. The maximum amount disbursed is not above €1,000, which you are supposed to repay within a month. Since these loans are disbursed in one fell swoop, it can be difficult to repay the debt on time.
Quick loans are available from direct lenders and credit unions. They are generally popular among subprime borrowers. As the loan amount is exiguous and the default risk is way too high, banks do not provide these loans. Though credit unions and lenders claim to provide competitive interest rates, it is enjoined that you compare their deals before jumping at the first offer.
What are the ways to compare quick loan options?
Here are the ways to compare quick loan options:
Check the APR
An APR refers to the annual percentage rate. It determines the actual cost of the loan. It reveals how much a loan will cost you if you accrue it for a full one year. It is vital to compare deals based on the APR rather than only interest rates, as the former includes the interest rates and fees.
Even though you take out a loan with a one-month repayment period, you pay fees on top of the interest. The APR varies by lender. If your credit report has sticky patches, you will end up with a higher APR.
Credit unions might offer you lower APRs as compared to direct lenders. The average APR starts at 10.49%.
Compare the total cost of a loan
You should compare the total cost of the debt too. Many people compare loan options in Ireland based on monthly repayments only, but the actual cost is how much you pay in total interest.
Use online calculators to know monthly repayments and the total interest paid over the loan term. However, online calculators calculate the total cost based on the representative APR, which is considered the lowest possible rate that any borrower can qualify for. Unfortunately, many borrowers fail to qualify for those rates. The actual cost of the debt is certainly going to be higher than expected.
Evaluate repayment flexibility
Look for lenders that are flexible with repayment schedules. Some lenders require a lump sum payment for quick loans, while others require repayments in fixed instalments, which could be weekly, bi-weekly or monthly, depending on the loan amount.
Likewise, some lenders charge early repayment fees while others do not. You should take into account these factors when you compare quick loan options. If you struggle with repayments, some lenders can defer payments for some time or might be willing to accept minimum payments. You should inquire about repayment flexibility from lenders.
Consider approval speed and convenience
Quick loans are applied for during small emergencies, so it is necessary that you receive funds instantly. The sooner you get approval, the better it is. Most of the lenders quickly process your application, and once approved, they transfer funds within a few minutes.
You should compare deals based on the speed and convenience as well. Some lenders transfer money the same day within a few hours, while others take 24hours. However, it is essential to ensure that the lender transferring money at once performs affordability checks.
Whether you decide to borrow money from a direct lender or a credit union, you should ensure that funds are transferred immediately.
Check lender reputation
This is essential to check a lender’s reputation. A lender you are borrowing money from must be regulated by the Central Bank of Ireland. No borrower is allowed to borrow money from unauthorized lenders, as they could be loan sharks.
Unregistered lenders charge exorbitant interest rates to make money. You might end up with an expensive deal. Once you miss the repayment date, late payment charges will accumulate and increase the size of the debt. Eventually, you will end up with an abyss of debt.
You should check the registration details of a lender. If you come across a lender that makes claims that sound too good to be true, you should beware of them. It is your responsibility to carefully check the reputation of a lender before borrowing money.
What are the risks related to quick loans?
Quick loans offer convenience, but they are subject to some risks as well.
High APRs
Even if you borrow money from credit unions, you will end up with high interest rates. Since these loans are paid back in one shot, it could be challenging to repay the debt. You should choose a deal that seems affordable overall.
The risk of falling into debt
There is no doubt that the risk of falling into debt is quite high. Most of the borrowers struggle to discharge their debt on time. Once you fall behind on payment, late payment fees and interest penalties are levied, which may make it even more challenging to repay the debt. Eventually, you fall into debt.
They can damage your credit score
Quick loans, if not repaid on time, can ruin your credit score. However, timely payments cannot help improve your credit score, as they do not provide clarity about your repayment behaviour during the ups and downs in your financial condition.
The bottom line
To compare quick loan options, you should check the APR, the total cost of a loan, repayment flexibility, approval speed, and lender reputations.
These loans could be risky. Make sure that you borrow money only when you are confident about your repayment capacity.
