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Short Term Loan Nightmares

WARNING!!!

Don't be tempted by 'easy money' loans!

BEWARE!!

We cannot stress this enough, short term loans (if you are already in debt) are tantamount to financial calamaty, with seemingly never ending terms they are there to ruin you!

How they operate

It seems easy enough, go online and move the easy slider to the amount you want and move it to the term you want, and viola, you have money in your bank account tomorrow, easy as...right...

WRONG

Reason for loan?

You have probably taken the loan out in the first place because you are being pressured by other creditors to make payments, and you are not an isolated case, I have personally seen cases where people have even taken out 'short term loans' to pay short term loans, until they have 10 or more of them accounting to 4 or five times the debtors salary.
Some people have taken out loans to buy food, and pay bills such as power water etc, and some use them to pay school fees, or for other seemingly essential items for the house.

Whatever the reason, there should be some questions answered before you take the loan out (either by yourself or at least, the creditor?

Should you borrow the money

If you already have a payday loan, the answer is already no.
If you have a loan already, why do you need another, it's time to look at your situation, and not have the expectation that some 'easy money' is the answer to your problems. Chances are that the easy money now will get really rard really quickly.

Ask the question, 'What happens if I cant pay my loan in the loan period?'
If the answer is, it just continues until it is repaid then run now! If a loan just 'continues' then your $200.00 for a new tyre may end up in a $3,000 (or more) bill which you cannot afford.

I dont have the money to pay my loan, should I roll it over?
Rolling a loan over is a bit of a problem in itself, if you roll over the loan you will be effectively taking out a new loan in the eyes of the creditor, and every time you do this with a high interest loan you are getting deeper and deeper in debt. We liken this to digging a hole to fill a hole, the hole will never get filled.

Does your lender have hardship provisions?
According to the Credit Contracts and Consumer Finance Act, they should, but...
Chances are they either wont, or the process will be one thousand times more strenuous than the loan application itself, and if you were to apply for hardship, they may even decline you by saying 'you shouldnt have taken out the loan if you couldnt afford to repay.
This is a common answer from companies that charge over 500% interest on your loan.

If I cant pay will they just take it from me anyway?
Check your contract, you will most likely see the clause, 'if you fail to pay', and shortly following that, there will be a clause that says that 'the lender may get a payroll deduction from your employer', and as there is no amount, they will deduct whatever they feel like, and there is little that you can do about it.
Even more upsetting is that some companies use this as a way to blackmail a debtor into paying exactly what they want. i.e. they say 'pay how much we demand or we will just take it from your pay'


Are they short term loans?

According to our research they are not, we would compare them to the proverbial Wolf in Sheeps Clothing (something nasty disguised as something warm and fluffy).

Here are a few examples of how wrong things can get and how short term only means short term if you pay it short term.

Case Study 1

BorrowedPaidNowDetails
$400.00 None $3366.18 Interest is over $250% per annum (compounding)!

Prior to debt recovery the interest rate was over 540% (now at a debt collector)

Case Study 2

BorrowedPaidNowDetails
$300.00 $650 $1844.97 out of the 1844 over one thousand dollars
is default and punitive fees.

Interest continues to be charged (compounding) on this debt daily!

Summary?

Look at the contract you are signing, ask questions, and make investigations into any and every other source of money befor you get sucked in to short-term pay to pay type loans.
They might start out looking harmless enough, but the examples above are from (Hundreds of examples of) short term loans from providers.

Remember, to most finance companies you are just another number on a balance sheet


Remember Carol Beaumont, who said NO TO LOANSHARKS
National said yes to loansharks by 'kicking out' Carols Private Members Bill which limited the actions of companies that provided these type of loans with exorbadent interest rates.
see Credit Reforms (Responsible Lending) Bill

Even after the NZ Government has implemented changes to the credit contracts and consumer finance act, the same behaviour continues.