The Cost of Quick Loans from Loan Sharks
All lenders in South Africa lend money for profit. However, loan sharks offering quick loans which are easy to get are not controlled by the authorities and can ruin your life for the sake of making profit. They are illegal and the government is trying to fight them, but without much success.
That is why you have to know how to protect yourself from these "predators". Although their loans may seem the only solution when you don't have money, you have to have a clear idea of how they work to make things worse. Take a closer look at their cost structure.
Interest and Fees
The quick loans from loan sharks have the highest interest rates that you can imagine and possibly higher. However, these illegal lenders usually try to trick you into believing that the interest is low by presenting the rate charged daily rather than the annual percentage rate. Indeed, they charge it on a daily basis and this pushes the cost of the loan up even more.
In addition to the high interest, there are many very high fees. These include but are not limited to initiation fees and service fees. There are high fees for additional services such as having the lender call you to remind you of the payment's due date.
Penalty Fees and Extension
Since the quick loans from loan sharks are super expensive, many borrowers fail to repay them in full on time. In this case, they are charged a penalty fee, which is typically quite hefty. It makes the cost of the loan skyrocket.
The borrowers have no choice but to ask for an extension of the loan. This results in additional costs. The lender will most likely increase the interest and keep charging a penalty fee. Even though they have more time to repay their debt, the instalments which the borrowers pay are not much smaller while the cost of borrowing becomes unbelievably high.
Never take quick loans from loan sharks. Use the products of legitimate lenders.