For those with poor credit, it is not always easy to get a loan. When we see those financial adverts on TV, advertising loans, credit cards or pay-day loans, we don’t think to read the small print. Of we did take the time we would probably have our eyes bulging out of our heads at the rate of interest charged. One company, for example, has an interest rate of 1278%!! If you borrowed one hundred pounds over the course of 12 months, you would be paying back over one thousand pounds! Does that seem worth it to you? Ok, most of those loans are short-term loans, where you are supposed to pay back within thirty days, but still, those interest rates are terribly scary figures.

Short Term Penalties

Taking out a short term loan or credit card for poor credit is a high risk business. This is why companies charge higher interest rates. However, would it not be a better idea to charge them a lower rate to help them learn fiscal responsibility? Charging people a frightening rate of interest—in some people’s opinion—is tantamount to legalized loan sharking. Paying that level of interest can cause more damage to the pocket in the long term. Think about this scenario: You are one week away from being paid from your job. Money is tight and those late bills have come in. Let’s supposed you take out a loan for one hundred pounds to cover those final week expenses. The interest paid on that loan is over 277% per cent even if you pay back within seven days. The amount you pay back from the next monthly pay check eats further into your bills money for the next month. Therefore, you will be short next month by one hundred pounds plus interest. This means that at the end of the next month you will have to take out a temporary loan before the last week of the month and for more. See how it snowballs? It is easy to understand that people have money troubles but, if there is another way to solve those end-of-the-month money problems it is far better to do it without having to borrow money at a high rate of interest or by using a high interest credit card.

Balance Transfer

Balance transfers are always a good short term option, but beware of the pitfalls. Transferring your balance to a lower rate credit card may work out well for a few months, but there is always the chance that the rates will increase by far more than you first envisaged. This could end up costing you far more than you thought. 0% credit cards will usually remain at 0% for approximately 6 months, but sometimes as much as one year. One important thing to remember is that interest is based on the entire balance of your credit card and not the monthly payment. When you commit to a balance transfer and you pay 0% for six months, after the six months, all the compound interest from your existing balance mounts up and you might still pay more in the end.