What is a Pay Day loan?
A Short Term loan is commonly known as a Pay Day loan. It is at its most basic a form of cash flow assistance in the form of a loan. This means there's a set of pros and cons to taking out a pay day loan!
The Pay Day loan can range from R100 to R8000 and has a maximum repayment period of 6 months. The idea behind a Pay Day loan is to substitute a part of your income that usually gets paid back to the lender on the day your next salary is deposited into your account. Generally, the lenders will require you to pay back the loan between 30 and 45 days after it was taken out. A maximum of 6 months is only there in case of a payment default. So, if you need an immediate transfer of funds less than R8,000 and would be able to pay it back at the time of your next pay day, then a Pay Day could be a viable option.
You should take care in your planning and ability to repay the loan within the given time period as the interest rates are high on short term loans. This can cause you to fall even further behind in payments. The maximum interest charged on a short term loan is 60% per annum or 5% per month. A short term loan is an ideal source of financial relief in times of a sudden or unforeseen event and cost. The majority of lenders will have the money in your account within 24 hours. If you need a new fridge or have experienced an injury in the family, a Pay Day loan could be your best option. But, we repeat, only if you can repay the loan on time.
There are two additional types of fees involved with Pay Day loans:
-Initiation Fee - If the loan is less than R1000, the initiation fee is 15%. If the loan is greater than R1000, the initiation fee is R150 + 10% for every R1000 loaned.
- Service Fee - This fee is simply R50 + VAT which equals R57. The service fee is a monthly charge for every time the service is done.
Working Example:
Loan Amount: R2,500
Repayment Term: 90 Days
Interest and Fees: R945.46
Total Repayment: R3,445.46
Maximum APR: 36%
Minimum APR: 60%
2 Emergencies that will justify a Pay Day Loan
Home Emergencies
Do you need a new fridge, microwave, couch, bed or any other home appliance urgently? These can be big financial burdens on any South African citizen's cash flow. If you do not have the money to pay for what you need, then a pay day loan could assist you. A Pay Day loan will get you a maximum of R8,000 within 12 hours - depending on which lender you choose.
A loan will assist you in being able to afford that home necessity - through paying it over a period of time. This allows you to keep control over your cash flow. But, as with all forms of credit, it is extremely important to ensure that you are able to repay the monthly instalments. Once you are in a position where you cannot afford the monthly repayments, increased and compounded interest can result in a bad credit record that quickly builds up.
Upgrading and buying new home and leisure equipment is great, and helps you have pride in your home - however, it is not wise to take out a loan to pay for luxury goods.
Health Emergencies
Not everyone has medical aid or health insurance. If there's an urgent need for finance to pay a doctor, dentist or hospital, then a personal or pay day loan could be your solution.
It is important to first get a quote from the doctor, dentist or hospital. Then, once you have the total cost of the medical assistance you require, you can compare which lenders will best suit your needs. Keep in mind, compared to a personal loan, the interest rate on a pay day loan will be higher. Fincheck's Loan Comparison Calculator can help you determine which loan will suit you the best.
There are some key points to keep in mind when you consider a personal loan for a health emergency:
-Do you need the money urgently?
-How much money do you need?
-Can you pay the doctor, dentist or hospital back in monthly instalments through a personal loan? Even though this helps to keep cash flow alive, it is still a big responsibility.
Once you have thought about these key points. You can head over to the Fincheck Loan Comparison Calculator to compare interest rates, service fees, initiation fees and hidden costs to find the lender that suits you.
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