It can be a good idea to make sure that you know all about the loans that you are taking on before you take them out. Sometimes we can be in too much of a hurry to get the money that we need and do not check out all of the details. While this is completely understandable, it can be unwise as you could end up getting into more problems than you started with. A loan has costs and you need to be aware of these and make sure that the additional costs will not make it unworthwhile. You should be using a loan to buy you some time. So, if you need money now, but do not have it, the loan will provide the money and then you can pay it back when you have the money available. However, if you take out a loan and do not have the money available to repay it then you could find that you will be worse off than when you started.
How long a loan lasts is often referred to as the term of the loan. This is the time from when you take it out to when it is repaid. The term can vary a lot depending on the type of loan. For example, if you take out a mortgage then it might have a 25 year term, so it will take 25 years to repay the loan. However, if you take out an overdraft, it may only last a few hours, until you put some money into the account to repay it.
Loan terms are not always fixed. For example, a credit card will have no fixed term. You will borrow the money for as long as you want. Each month you will just have to repay a minimum amount which will cover the interest on the loan and possibly repay a small amount of the money that you have borrowed. You can keep doing this for as long as you wish and theoretically never repay the loan at all.
The length of the loan, will partly determine the cost of the loan. When interest is charged on the loan, you will charged for every day that you hold the loan. This means that you will keep being charged until it is repaid. If you repay it sooner then the interest will be less. Therefore, a mortgage will cost you a lot more in interest than a 2 day overdraft. Of course, there are different rates as well and a mortgage is likely to have a lower rate of interest than an overdraft but in monetary terms you will still pay more interest. However, it is not just about the amount you are paying.
A longer loan term will help to make the loan more manageable. If you fail to make a repayment then you will have to pay extra fees and charge. This means that you will end up paying out even more money. If you pay over a longer time, each repayment will be smaller and therefore much easier to manage. You will therefore have to decide whether you feel it is worth paying out more interest and spreading the payments to make the loan easier to manage or to repay it in less time but make bigger repayments and risk not being able to manage them. The only way you will know is to actually do some calculations and work it all out.
Payday Loan Terms
With a payday loan the term is very short. You will repay the loan in full, when you next get paid. This means that the loan can last anything from four weeks to just a few days. You will therefore not be charged interest for very many days. However, you will have to find a chunk of money to repay. As you can usually only borrow up to £1,000 and often will borrow less, then it will not be a huge repayment. However, it is still really important to make sure that you can cover that repayment.
It is wise to be completely aware as to when you will need to repay the loan and how much you will need to repay. Do not stop here though, make sure that you then check carefully to make sure that you will be able to afford it. You should be able to take a look at your past bank statements and look at whether you will have enough money to cover it. Think about whether you might have any extra expenses in the particular month when you are repaying, such as car Mot or things like that which happen less often than monthly. If you feel you will struggle to repay then you will need to come up with a plan that will help you to manage that, perhaps by spending less on other things or earning more money.