Nobody wants to have unexpected bills that impact their finances. However, modern life means this can be a reality for many people. This is where short term loans can provide quick financial relief when the unexpected arrives, especially if you don’t have any emergency savings to lean on. If you’ve never used these before, below we’ll explain when they can be a good option, why people choose them, and how to find a reputable lender.
Why People Choose Short-Term Loans
People often choose short-term loans thanks to their convenience and speed, as they provide immediate access to funds for urgent financial needs. Whether it’s for emergency repairs, unexpected bills, or to see you through to your next payday, a short term loan can be useful in the right circumstances.
What makes them particularly appealing is that they typically have less stringent credit requirements. When compared to personal loans and other forms of credit, they can be useful for those with less-than-perfect credit histories which may mean having a low credit score. This can be ideal if other lenders cannot help, providing a lifeline for those who need urgent cash.
Additionally, the flexibility with repayments allows borrowers to quickly acquire cash and manage it over a short period. You can usually borrow up to £1,500 and choose a repayment term between 3 – 6 months, although this will vary between lenders. Again, when compared to a personal loan, it gives you access to smaller loan amounts and shorter repayment terms that otherwise wouldn’t be available.
What To Consider Before Applying
So, while short-term loans can be a convenient solution, it’s important to consider a few things first:
Interest Charge
Like any form of borrowing, you will be charged interest on your short term loan. The annual percentage rate (APR) will be higher on this when compared to a personal loan, but it’s important to remember the APR is the annual rate and a short term loan would only be spread over a few months whilst a personal loan would have repayments spanning at least 12 months. This can be confusing when working out the interest you’ll pay, so most lenders make the interest charge for the loan simple and clear to see.
If you use a Financial Conduct Authority (FCA) authorised lender, and you should, the interest is capped at 0.8% per day and you will not have to pay back more than 100% of the amount borrowed in fees and interest. You’ll be able to see how much the loan amount you want to borrow will cost for the repayment term you choose before applying. This way, you can make an informed decision on if the repayments are affordable for you and adjust the term based on your budget.
No Guaranteed Approval
The lender cannot guarantee approval, even if they can help those with a low credit rating. As they will follow responsible lending guidelines set out by the FCA, they will need to ensure the loan is sustainable for you. They’ll do this by checking your income and outgoings and performing credit checks. Be wary of any lenders that can offer ‘no credit check loans’ as all FCA-approved lenders have to perform credit and affordability checks.
Checking Your Budget
To have peace of mind that the loan will be affordable for you, it’s a good idea to quickly check your income and outgoings to see how much disposable income you have. If you don’t have time to do this before applying, most lenders will do this as part of the application process. You want to be sure you can sustain the repayments and so will the lender, otherwise the loan may be declined.
No Hidden Fees
You ideally want to choose a lender that doesn’t have any hidden fees buried in the credit agreement. Some will charge admin fees on top of the loan, and if using a broker service, you may be charged a broker fee too. It can be best to use a direct lender for this reason, and one that is transparent with any additional fees. Check how much they charge for any late repayments (some may not charge at all) and also check if early repayment is possible, and if so, if there is an early settlement fee.
Choose The Best Option For Your Circumstances
As long as you treat short-term loans as something to help you in the short term only and not as an ongoing form of credit, they can be useful when you need them. It’s best to assess your financial situation and consider all available options first before proceeding. If there is an alternative like borrowing from friends or family, this might offer more favourable terms. If not, check whether your savings can help resolve the issue without having to rely on credit.
However you decide to proceed, be sure it’s affordable for you – that way you can resolve your issue and stay on track with your finances.
Author Name: Kelly Richards
Author Bio: Kelly is the founder of the Cashfloat blog and has been working tirelessly to produce interesting and informative articles for UK consumers since the blog’s creation. Kelly’s passion is travelling. She loves her job because she can do it from anywhere in the world! Whether inspiration hits her while sitting on the balcony of a French B&B, or whether she is struck with an idea in a roadside cafe in Moscow, she will always make sure that the idea comes to fruition.
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