Evaluating Next Day Loans: When Should Consumers Consider Short-term Credit?

USDIn recent times, America has perfected the art of taking one step forward and two steps back with regards to the economy.

After the second and third financial quarters delivered steady growth and a gradual reduction in the nation’s unemployment numbers, the federal government allowed this expansion to be significantly undermined by the recent shut-down. Credit ratings agency S & P estimates that the temporary closure of the U.S. government took $24 billion out of the economy, while it also reduced its forecast for fourth quarterly GDP growth by 0.6%.

There is little doubt that this level of uncertainty and volatility has changed the nature of consumer lending in the U.S, while also marking an end to the days when citizens could live off credit without ever having to face the consequence of defaulting. This has led to the development of flexible unsecured lending and next day loans, which offer short-term financial solutions to residents without forcing them to commit to three year repayment plans or submit their home as collateral.

While some see next day loans as an ideal way of supplementing their income, however, it is important to consider the nature of this type of lending and the inherent risks associated. For example:

The Repayment Terms and Cost of Defaulting

Next day loans are available to individuals with a poor credit score, which certainly helps to explain the popularity in the current economic climate. Once approved, applicants can expect to receive their money within 24 hours and must commit to making a full repayment within 30-45 days. The first thing to note is that these terms of fixed and stringent, and failure to make a repayment will incur the addition of interest on a daily basis until an agreement is reached. While some lenders may offer you the opportunity to extend your loan, this will require you to pay a percentage of your existing debt without reducing any of the arrears on your account.

Inflated Interest Rates

One of the biggest risks associated with next day loans is their inflated levels of interest, which can be anywhere between 900% and 4000% APR (Annual Percentage Rate) depending on the individual lender. This means that you will be repaying significantly more than you borrow with a next day loan, and it is crucial that you understand the total amount due under the terms of the agreement prior to making a commitment. These high levels of interest also highlight the dangers of entering into recurring arrangements with next day lenders, as the amount that you need to borrow is likely to rise on a monthly basis.

Understanding Qualification Criteria and Assuming Responsibility for you Finances

When you initially apply for a next day loan, the majority of lenders will perform a brief background check to ensure that you are employed and have a residential address. Once you become a regular or returning customer, however, these checks are not always undertaken meaning that it is possible for individuals without viable employment to get a line of short-term credit. You must therefore assume responsibility for your own financial circumstances, and ensure that you have a viable source of income that enables you to repay a one-off, next day loan. No matter how badly afflicted you are by austerity, you must never consider next day lending as an independent source of income.

The Bottom Line

While there is little doubt that next day loans serve a definitive purpose in a volatile economy and jobs market, it is crucial that you understand the nature and risks associated with short-term lending prior to making an application. Otherwise, you may find yourself trapped in a recurring debt-trap that is extremely difficult to escape from.

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