Need quick access to cash? You have several options available to you, but each comes with pros and cons that are important to understand before signing yourself up for them. Here’s a summary of the advantages and disadvantages of personal loans, short-term loans and credit card overdrafts. In addition to this resource, be sure to read the fine print on any loan you might take out so that you’re fully aware of the terms of the agreement you’re entering into.
Personal Loans
The Pros…
A personal loan can offer quick access to cash that usually doesn’t come with the exorbitant interest rates that credit cards do, and you can pay them off in manageable monthly instalments. For this reason, many people use them to consolidate and pay off their credit card debt, opting instead for the lower interest rates of a personal loan. Some personal loans are unsecured, which means that the rate you pay is based on your credit score and history, saving you from having put up any collateral (such as your car or home). Another perk is that they’re easy to apply for and are typically processed fairly quickly.
The Cons…
If you are using a personal loan to consolidate your existing credit card debt, then seeing your card balance at zero could tempt you to spend more and land yourself in further debt. If you’re not disciplined and don’t focus on repaying, personal loans can potentially become bigger debt holes.
Personal loans do tend to come with lower interest rates than credit cards (although that’s not always the case so read the fine print) but only the most qualified customers are going to get the attractive rates providers like to advertise. You may also be charged an initiation fee of anywhere between 1% and 5% of the total loan amount.
Short-Term Loans
The Pros…
Short-term loans are a great way to get quick access to cash without having to jump through hoops to get it. Procuring proof of income, a valid bank account, and adding your personal details can be enough to get the cash you need (deposited into your bank account) at short notice. Traditional loans can take several weeks to be evaluated and approved, but short-term loans are typically processed on the same day that you apply for them, and can even be available within a few hours. Additionally, they don’t dig too deep into your credit history, which is a relief to those who would otherwise be turned down by traditional financial service providers.
The Cons…
For the benefit of receiving the cash you need on such short notice, there are fees and interest rates to pay, although they are typically lower than credit cards. Make sure you understand the short-term loan provider’s terms, conditions, and fee structure before applying for one. Also remember, short-term loans are intended to be short-term and should usually be paid back within two weeks. The quicker you repay your loan, the less interest you’ll pay!
Credit Card Overdraft
The Pros…
Credit cards provide users with far more purchasing options because they have few limitations in terms of where (locally, internationally) and how (online, offline, telephonically) they can be used. They come with the option to pay off debt in monthly instalments and, if used correctly and responsibly, can help you establish a good credit rating. Credit cards also provide an option for funding in emergency situations, can earn rewards, cash-backs, and miles depending on your provider, and offer fraud protection in the event that your card is stolen or used unlawfully. Finally, they eliminate the need to carry cash, which can be a safety risk.
The Cons…
Credit cards create the illusion that you have more money than you really do, and this can temp you to spend more than you can afford to. Every time you spend this money, you fall deeper into debt that comes hand-in-hand with steep fees and enormous interest rates – often in the double digits. Depending on the credit card and how you use it, it can cost thousands of Rands over the course of a year and the terms and conditions can be quite confusing, putting you at risk of incurring “hidden fees”. Misusing a credit card (late payments, big outstanding balances) can also ruin your credit score and there is always the potential for credit card fraud. Criminals can access the online stores and websites where you shop and steal your personal information and card details.
Remember…
Always make sure that you understand the terms and conditions of the loans you sign up for to avoid any nasty surprises and falling into deeper debt than necessary.
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