Short term loans are financial obligations that must be repaid within a year. While there is a wider variety of short term loans in South Africa and more people are benefitting from them, there are also some potential pitfalls to watch out for.
High interest rates
These loans may leave you vulnerable to high interest rates. Depending on the type of short term loan you apply for, you may have to contend with high rates. If you choose a payday loan for instance, you should prepare for high interest rates.
Can lead to a debt spiral
For some people, taking out short term loans can turn into a debt spiral. There are various reasons that people apply for short term loans. For some people, it could be because of an unexpected expense that comes up, while for others it may be due to bad management of finances. Without knowing the true reasons for needing the loan, some people may end up relying on this form of finance to see them through until the end of the month. This is where it can become a bad idea to get short term loans in South Africa.
Secured loan dangers
If you opt for a secured loan as the short term loan of your choice you need to keep in mind that the asset you put up as collateral could be repossessed by the lender and sold if you default. The good part is that these loans have lower interest rates, but you need to make sure that you repay the loan when it’s due in order to avoid losing your asset.
You may have to face some severe penalties such as prepayment penalties or even losing your asset if you default.