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The Bad Effects of Short Term Loans that You Should Know About!

Short term loans are often made out to be the solution to your cash flow problems. While they may help boost your short term cash flow, are they the best decision over the long term?

Before you consider a short term loan, there are some factors that you need to consider.

Fees & Interest

Short term loans are considered very high risk. They are normally unsecured and ask for no collateral, making it risky from the lenders point of view. Because of this, lenders often charge high interest to compensate for the risk. While these rates are limited by the National Credit Regulator, the interest rate is still high and can make the repayments very expensive.

The maximum interest rate for a personal loan as set out by the NCR in 2007 is the Repo Rate + 21% per annum. The current repo rate is 3.5% making the maximum interest rate 24.5%. This is almost a quarter of your loan amount per year in interest.

While we often aim to pay the debt off fast, it is often not possible.

Can Encourage Unsustainable Spending Habits

When we take out a short-term loan, we have run out of money or have unforeseen expenses. When we have run out of money, taking out a loan can solve our immediate deficit, but it leads to more costs later on.

A better option would be to manage your finances better and avoid taking out debt. 

Can Limit Your Future Finances

Because of the high interest and fees charged by short term loans, it can restrict your monthly budget. Having to pay a large sum of money every month towards your debt gives you less money for other essentials.

How to Make My Debt Repayments More Affordable?

If you find yourself in a position where you are paying high interest and fees, and are restricted by your repayments, it may be time to look for help. Our Bond Optimiser team is ready to help you reduce your monthly repayments by refinancing your debt into your home mortgage. This can lead to lower interest, less fees and more savings on your monthly repayments. Our team can also work with you to help you become debt free.

Our clients also go through a 12-month foundation financial literacy course Edvance, aimed to help you manage your personal finances better in the future.

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