payday loans and advances are very versatile banking products. Thanks to them you can finance previously unplanned expenses, complete a school layette or go on a journey of a lifetime …
The formalities associated with obtaining a loan are not complicated and do not last long. Before deciding to take a loan, however, you should check the associated costs (including the amount of commission or insurance costs). The type of interest rate is also important. In the case of a payday loan, it can be fixed or variable, calculated according to interest rates. How do these solutions differ from each other and which one is better for the borrower?
Variable interest rate
Banks provide annual interest rates. It usually depends on several factors such as the bank’s margin and variable NBP interest rate (e.g. reference rate). So if the Monetary Policy Council decides to raise interest rates, for example, by 0.5 percentage point and the reference rate increases to 2%, then the interest rate on the loan will also increase.
Therefore, if we decide to pay a payday loan at an interest rate, paraphrasing the Bible, “we can’t be sure of the day or time.” When repaying such a loan, we will not know exactly what percentage of the household budget we will have to spend on repayment. If the bank informs us about the change in interest rate, and we pay the installments via a standing order, we will have to change its amount, and this – regardless of whether we make the change via online banking or visit the bank’s branch – will take us time.
… or maybe permanent?
Fixed interest is a more beneficial solution for the borrower, especially for long-term loans. First of all, because already at the time of conclusion of the contract he knows how much he will pay back to the bank throughout the repayment period, and knowing the amount of the monthly installment, he can plan his monthly household budget much better. – Everyone likes to feel confident and know how much to spend on paying installments per month. At CreditCole we guarantee a fixed interest rate throughout the loan repayment period – says Aneeka Monic, a specialist in banking product development at CreditCole.
A loan with a fixed interest rate and a fixed monthly installment is favorable in the situation of low interest rates and uncertainty as to their changes in the near future. Since March 2015, the Monetary Policy Council has not decided to change the level of interest rates. From the statements of its new chairman Aldrin Galope (” I do not think that any changes in the level of interest rates in the near future, or in the coming quarters could be realistically expected “) can be concluded that in the coming quarters the current interest rates should be expected to be maintained. If the MPC decides to change interest rates, they will rather be upward changes … At the same time, Aldrin Galope reserves that he cannot speak on behalf of all Council members. In turn, PKO BP analysts forecast that the Monetary Policy Council will not resume monetary policy easing, and the first change in interest rates will be a hike. They also assume that this will occur at the earliest at the end of 2017 due to increased uncertainty about the outlook for the global economy.
Do you repay the loan? Check what’s happening on the market!
Even if we are already a bank customer paying back a payday loan, we should follow what is happening on the market. Why? Perhaps there will be an opportunity to change the loan to one whose repayment terms will be more attractive to us. What can you gain? First of all, a lower installment (thanks to a lower interest rate and / or a longer repayment period). Importantly, in some banks (e.g. CreditCole) the benefits of a consolidation loan can be used by transferring only one loan or loan. Credit transfer formalities are kept to a minimum. The client presents in the branch documents confirming the parameters of the obligation (including the interest rate) transferred from another bank or credit unions.
Taking a payday loan, we do not associate with the bank for several dozen years, and at most for several. However, you should not decide on the first better offer. The type of interest rate is one of the factors that we should pay attention to in the first.