Secured versus unsecured loans and
the APR issue
Secured loans attract the consumer
because of their installment schemes, and offer the advantage to make repayments
for a longer time period. When you consider taking a loan, the low interest
rates of a secured loan are more attractive in comparison to the high interest
rates of payday loans. The simple fact that these are for short term that
fulfill needs immediately is not considered, which is something that can never
be expected of a secured loan. Painstaking efforts are involved in getting a
secured loan, while payday loans are just a few clicks away. High interest
rates on these loans can be compared with the collateral that you have to
provide to get a secured loan. Even then the interest rates on cash loans in
terms of annual percentage rates (APR) can be justified owing to the high risk
factor involved. The fact is that APR is calculated on an annual basis, and
this does not apply to short term loans. Mentioning the APR applicable is just
a legal formality that the payday lenders follow, it is one of the features
that show you whether the lender is responsible, and genuine.
Responsible Borrowing
Due to the ease of availability of
these loans, it can be very easy to get carried away, and use such loans
repeatedly. As a consumer, it is important to realize that managing personal
finances is ultimately a personal responsibility. Just because there are such
efficient and easy financial services available does not mean that you take
them up even when you do not have the need. Bank overdrafts, credit card cash
advances and payday loans are all meant to cover only temporary financial
needs. They should not be considered as a long term financial option.
Responsible Lending
Short term loans are meant to
fulfill only temporary financial needs, and every genuine lender who follows a
responsible lending policy, will make that very clear to the customer, in every
way possible. Genuine lenders will have a registered license number, which can
be verified. They will be transparent and upfront about all their charges, and
there will be no hidden costs involved. Genuine lenders will make sure that you
do not get overburdened, and thus will not offer you a loan if you are already
in a debt, if you have already taken an overdraft, or if they find that you
will not be able to repay the loan amount. Genuine lenders are also connected
to credit verification agencies, and if you repay your loan successfully, they
inform these agencies of your profile status, mentioning that you are not a
high risk borrower any more. This helps build your credit profile, and in time
you will be eligible for more cash, from other credit sources.
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