Comparing Short Term Credit | Finance Diva

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Most people have several short term credit options available to them, if they find themselves in need of a short term loan to bridge the gap until they next get paid. ?This could be for any kind of necessity from a food purchase to a utility bill. ?The lending options available are the following:

• Authorized bank overdraft
• Unauthorised bank overdraft
• Payday loans
• Credit card

Therefore in this situation, how do you know which option to proceed with? ?There are many different advantages and disadvantages to each of these options, however it makes sense to use the option which is a) available to you and b) it costs the least. ?Let?s look at the case study below which breaks down each individual choice to determine how much each choice will cost in the long run:
This case study looks at ?Peter? who wants to borrow $160 at the cheapest possible rate so that he can manage financially until his next payday. ?He needs to look at the following things to determine in real terms how much each of these borrowing options will cost him:

• The interest rate against a loan of $160
• The length of time he has to repay the loan
• Any additional hidden charges
• The total cost of borrowing and repaying the loan of $160

Authorised bank overdraft
Loan APR: (Average) 14.9%
Repayment time: At Peters discretion as agreed with bank indefinitely
Repayment Amount: $23 on $160 overdraft
TOTAL $182

Credit Card
Loan APR: 16.9%
Repayment time: On-going
Repayment Amount: $26.86 for $160 loan
TOTAL $185.78

Payday Loans
Loan APR: 1737%
Repayment time: Within 30 days

Repayment Amount: $69.28 for $160 loan over 30 days (some payday lenders charge additional charges)

TOTAL $226.76

Unauthorised bank overdraft
Loan APR: n/a
Repayment time: One week/ month

Repayment Amount: Between $35 and $295 per month, an average of $165 (unauthorised bank overdrafts must be repaid ASAP)

TOTAL $324

This case study illustrates the four different short term credit options available to Peter and clearly identifies the financial implications of all of these options. ?The cheapest short term loan is an authorised bank overdraft and the most expensive short term loan is an unauthorised bank overdraft. ?Surprisingly, payday loans are actually a cheaper credit option than an unauthorised bank overdraft.

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This is a guest post written by Fast Payday Loans Review. If you would like to get in front of Finance Diva?s readers; feel free to contact us.

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