How much does a cash loan cost?

A small cash loan can be a good way to deal with something that unexpectedly crops up. A quick search online shows there are many lenders willing to help. But it pays to carefully look around - don't just choose the first name that appears at the top of an online search. Make sure you select a registered financial service provider - look at the bottom of the lender's website to find out if they are. New Zealand laws require lenders to provide you with specific information about the costs of a loan before you sign or consent to anything.

When considering a loan, it's tempting to only think about weekly or monthly repayments. While these are important to help manage your money, low repayment amounts can add up to be an expensive loan over the longer term if the interest rate is high. So, you need to look at the total cost of borrowing. The real cost is made up the loan amount, the interest rate, any fees and costs, how often you make payments and how long until the loan is paid off.

Consideration must be given to both the regular payment amounts and the total amount to be repaid. The regular payment amounts are important because they must be manageable for you over a period of time. The total amount to be repaid is important because you don't want to be ripped off and forced to pay an excessive amount.

Responsible lenders let you know the costs before you borrow.

These days, most online lender have a Loan Calculator on their website to give you an indication of how much the loan will cost. In most cases you can adjust the amount borrowed, the frequency of payments and the term of the loan. The Little Loan Shop is clear about cash loan costs and there are no hidden fees

Here are some examples:- For a $500 loan the establishment fee is $21.50 and the annual interest rate is 456%. If the loan is to be paid off with 2 fortnightly payments, the fortnightly amount to pay is $334.14 and the total amount is $668.28. This means the cost of the loan to you is $168.28, which is the sum of the interest and fees. On the other hand, if you choose 3 fortnightly payments, the fortnightly amount is $240.84, the total is $722.49, making the sum of the interest and fees cost of $222.49. This total cost of the 3 fortnightly option is $54.21 more expensive, but the payments are easier. Thus the shorter term of 2 fortnights is cheaper overall and you may choose this if you can manage the payment amounts of $334.14, However, since the 3 fortnight payments are less this may be a preferable option, even though the total cost is more.

Interest Rate

The interest rate of 456% sounds high and it is. But because it's only for a short term and paid back in a few weeks, it's not an unreasonable rate. A good comparison is a taxi service. Taking a taxi for a short trip around town is a sensible option and the rate per minute is reasonable. But if you want to travel to another city, a taxi is way to expensive - you would take a bus or train instead.

Fees and other costs

Fees are usually applied by the lender to cover the cost of providing and servicing a loan. They are added to the loan amount borrowed so no need to be paid up front. In most cases you will pay interest on the fees as well because they are considered part of the loan. Take a close look at the fees listed by lenders and look out for things like dishonor fees, direct debit fees, contact fees and loan payment adjustment fees. These can add up if you don't stick to the payment schedule laid out in the credit contract when you sign up. To avoid these fees, make sure the payments are made on time. The Little Loan Shop fees can be viewed in the Loan Costs section of the website.