Just after my bank offered short term loans (35 days maximum) I had 2 credit cards that were about to bill me $59.00 each annual fee. I took advantage of the loan and paid off both credit cards and closed them. I owed around $450.00 on both cards. My short term loan charged me $50.00 simple interest for a $500.00 loan. Since I got rid of two high interest credit cards and saved $118.00 in annual fees, I was very satisfied with the loan even though it was paid in full in two weeks. Bad credit personal loans can help.

Here is where most people get confused by payday loans. My interest rate on this loan was 10%($50.00 finance charge divided by $500.00 loan principal) Lenders are required by law to also disclose the Annual Percentage Rate (APR) of the loan as well. The APR is supposed to show the “true” cost of the loan on an annual basis. My short-term loans APR was computed by multiplying the interest rate by 12. The loan needed to be paid within 35 days. There is roughly 12 35 day periods in a year so my loan’s APR was 120% which sounds like loan shark rates. Sounds very complex and confusing. Why do lenders have to disclose APRs. Consumer protection!

The only way borrowers get into trouble with short term loans is a failure to cover the loan amount without using their regular income. If they do not cut back on spending, increase their hours at work or sell off unused household items, they will end up taking out another short term loan to cover their living expenses.

In my case, if I had not paid off those credit cards, cut back on spending and worked a few more hours, I would have had to take out another short term loan. In other words, my 10% interest would become 20%. (2 $50.00 finance charges for the same $500.00)

Credit cards are a much worse source of emergency money. Credit card companies make their highest profits when people abuse the cards by carrying high balances on them. Remember credit cards charge fees to the merchant for processing the transaction as well as interest to the cardholder. They make money off of both parties to any transaction.

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