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Dispelling Common Myths About Short-Term Loans
Dispelling Common Myths About Short-Term Loans
June 15, 2018
Myth: Short-term, small-dollar loans have unreasonably high interest rates.
FACT: Unlike other financial services, short-term, small-dollar loans do not have interest- accruing fees.
- The typical fee for a loan is $15 per $100 borrowed – a set price for a short-term transaction. Our customers appreciate that a short-term loan, with a one-time fee, can be less expensive than the costs of bouncing a check, missing a credit card payment or neglecting a bill.
- The Federal Truth in Lending Act (TILA) requires all financial institutions to disclose loan fees as Annual Percentage Rates (APR). In order to comply with TILA, Advance America reports the implied APR of its loans – the amount you would pay in fees if you renewed your loan every two weeks for a full year.
- The average loan term is only two to four weeks. APR is a more appropriate measure of costs associated with loans that last for at least a year, such as a mortgage or a car loan. However, even using APR as a measure of the cost of various options for short-term loans, short-term loans are still the least costly option compared to bank overdraft fees and bounced checks.
