Over the years, short-term loans have gotten themselves a poor reputation for having high interest rates and being impossible to get away from for some people.
In the past, short-term lenders used much more predatory practices and would impose huge fees on people who were already struggling with their money in the first place. However, since then, many of the companies that operated in this manner have been shut down and there are stricter rules in place that these lenders need to follow to ensure that not only are loans affordable for the lenders but that the practices they use are fair when dealing with issues like missed or late payments.
The truth is that sometimes, getting a short-term loan can be a handy option to have. If your washing machine breaks down and you don’t have the cash spare for a new one, or you get an unexpectedly high bill and need to pay it before your next payday, a short-term loan can provide you with the cash you need immediately, and then you will repay it once you’re in a better financial situation – i.e., on your next payday. Unlike many of the short-term and ‘payday’ loans of the past, today’s short-term loans tend to be repaid in smaller amounts over a few months rather than the lender expecting you to fork out to cover the entire loan repayment next time you’re paid, which left lots of people in further financial problems and put them in a position where they were forced to borrow again to cover the month’s expenses.
If you need some short-term cash, here are some of the main factors to consider to help you get a short-term loan without harming your financial situation or your credit score.
How reputable the lender is will be one of the main things to consider if you need a short-term loan. When looking for this kind of financial product, it is important to shop around rather than borrowing from the first lender that you can find. While more short-term lenders and payday loan companies today are responsible and care about the experience that lenders have with them compared to in the past, the sad thing is that not every lender is going to be like this. Lenders need to comply with a lot of strict regulations, so the first thing that you want to find out is more about their process of checking affordability, what happens if you are struggling to repay, and if charges are capped at a fair amount. The easiest way to do this is to go through a trusted broker like Payday UK. Payday UK will take the information you provide to search a panel of trusted lenders to help you find the best product for you.
When applying for a short-term loan, a common and easy mistake to make is getting more than you need. And, a lot of lenders make this easy to do. Let’s say you apply for £200 to cover an expense, but upon applying, the lender informs you that you’re actually eligible for £500, and all of a sudden you are thinking about all the things that you could do with the extra £300. However, while it might be nice to have some more cash this month, don’t forget that the more you borrow, the more you will need to repay, and the harder it could get. Before you accept a higher amount, consider if you really need it, and if you don’t, it’s best to decline. Otherwise, you may only end up putting yourself in further financial difficultly that you don’t need.
One of the downsides to short-term loan options is that they will often have higher interest rates compared to other financial products. Because of this, one of the main reasons to shop around when it comes to finding the right short-term loans for you is that it gives you the chance to compare these interest rates and see the different repayment options for each product. Chances are that some are going to have lower interest rates than others resulting in smaller monthly repayments, while others offer longer repayment terms, which might cost more in the long run but can be worth going for if you’d struggle each month if you were paying more.
Most short-term lenders will give you the option to choose when you want to make your repayments each week or month based on what is easiest for you. Most people choose the day that they are paid or the day after their payday to make it easier and avoid having to keep money aside until a later time in the month. It’s important to spend some time carefully considering the best payment date to choose since you will need to keep up with making payments on this date for the duration of the loan. This might be obvious if you are paid on the same date every month, however, if you’re paid on a day where the date might change, such as the last Friday of the month, for example, then it might be a wise idea to choose a fixed date that is going to be close every time, like the 30th or the 1st of the month.
If you are already repaying other debts like credit cards and loans and need to take a short-term loan out, then it’s worth considering if it’s going to have an impact on your existing debts. For example, if you’re paying more than the minimum payment to your credit card right now but taking out a short-term loan means that you’ll need to reduce these payments while you are paying the loan back, it’s worth considering the impact that this might have on your finances. For example, your credit card will probably not be as available to use for the duration, so it’s important to be prepared for this.
Finally, bear in mind that while there are short-term loan options and other payday loans that are designed for people with lower credit scores who might struggle to get accepted for another financial borrowing product, this does not always guarantee that you are going to be accepted. Today, short-term lenders need to meet a strict set of standards in order to continue operating and this often means that they are not able to lend to you if you don’t meet affordability criteria. This isn’t just in place to protect the lender but also to protect you from getting into financial trouble. If you are not accepted, it’s worth considering any alternative options like Buy Now Pay Later or asking family for help. Bear in mind that if a credit application is rejected, this will stay on your credit score for a few weeks and might impact the acceptance rate of further applications you make for other products.
While it’s easy to shy away from short-term loans due to their past reputation, many companies today are responsible and there are strategies you can use to borrow short-term without any financial harm.