These loans are good for people in a hurry to get a quick amount of money but not a huge sum which can be provided by other types of credits. These loans can easily be used to meet expenses such as the medical bills, home repairs or any other emergent purchase. However convenient they may be for a while, one must be fully aware of the hidden costs associated with small loans. Such loans may have concealed costs and conditions which may be disadvantageous to the borrower in the longer run.
Rates of Interest
It is noteworthy that one of the main expenses that consumers attribute to the use of a small loan is interest rates. Micro loans are expensive compared to other loans especially when they attract short term repayment periods. Lenders set these rates for customers who borrow small amounts at a time and means a poor borrower can find themselves receiving hostile interest charges on the money borrowed if not paid on time.
Hidden Fees and Processing Fees
In Addition to the interest rate, especially for small loans, it is possible to find processing fees, administrative charges or other additional costs. It can be high in relation to the amount taken, though, such fees may easily reach thousands of dollars.
Penalties for late payments
In addition, note that if you default the payment or if you make the payment later than agreed to make, you will be charged additional fees. Sometimes it comes as other charges that are incurred on your bill, which if not paid on time may accumulate to a large sum. These extra costs can be avoided by having adequate understanding of the repayment terms besides setting reminders for the payments to be made.
Terms of Repayment
Most small loan products have very short terms, this implies that borrowers will have to pay the loan back within weeks or a month. Nevertheless, it may not appear to be very taxing, it may prove unreasonably difficult to include in monthly and even weekly finances particularly if you face other bills to meet. When seeking the loan, ensure that the loan shall be repaid in a way that does not put a lot of pressure on your financial empire.
Impact on Credit Score
Even small loans do not need rigorous credit checks, yet if you borrow and are unable to pay on time your credit rating sullies. The credit score could further be lowered making it more and more challenging to borrow in future similar credits could attract higher interests on future borrowings. We need to consider the impact that it’s likely to have on the credit score in future.
Small loans are quite good for the case of emergencies or unscheduled expenses just because these types of credits do not take a lot of time to get, however, they have their own price that has to be paid, and it cannot be considered low. It may be possible to acquire a small loan at low interest and for a small processing fee but other charges such as for late payment and the effect of these charges on your credit rating are the other costs of such a loan.
