Why Are Interest Rates On Short-term Loans Not Necessarily Comparable To Each Other? Give


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Deborah Mann Profile
Deborah Mann answered
Interest rates on short term loans can vary for a number of reasons. For example if you have a bad credit rating but are still able to get a loan, you will find that the interest rate will be higher than if you have an impeccable record. In effect, this means that the good payers and the ones that are never late with a payment get rewarded in the future should they wish to borrow again.

  • Market competition
Some financial institutions will promote different products at different times depending upon their own circumstances, and so it is sometimes possible to find differences in the interest rates from place to place.

Typically, it is banks that offer the lowest rates and other organizations charge more. Banks are obviously the first port of call for many people wanting a short term loan but they are more cautious about whom they lend to (particularly nowadays since they are responsible for so much economic catastrophe around the world).

This means that those who are unable to get a short term loan from a bank have little option if they really need a loan, but to go to an establishment that only offers higher interest rates.

  • Really short term
Another reason why interest rates change from loan to loan is the length of time the loan is taken out for. The shorter the term, the higher the rate so that the finance company can make as much as they possibly can out of you in the time period. This means that so called pay day loans can be a useful way of raising some immediate cash, but the interest rates charged are phenomenally high because the length of the loan is usually for a month at a time.

These types of loans should be avoided when at all possible.

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