There are many people that are still confused about short
term loans and what they can or should be used for. It is worth understanding a
bit about how they work and how they are different to other loans so that you
can decide whether they are the right sort of loan for you.
What are short term loans?
Short term loans are generally loans that do not last very long. There are different types and some may only last a few weeks whereas others may last a year or so, but they generally last less time than a more conventional loan. They are normally issued by specific lenders that only deal in short-term loans so they will not be the well-known lenders that we see on our high streets. Most short-term lenders will tend to process their loan applications very quickly and this means that you may get the money within a few hours or a few days at the longest normally, which can be a lot quicker than more traditional lenders. They will also tend to lend to those people that have a poor credit record. This is because short term loans were actually originated for those that could not get loans elsewhere. This means that they are available to lots of people including those that have been turned down for loans by more conventional lenders.
What can they be used for?
With some loans there is a specific purpose that they have to be used for. This can apply to things like student loans or mortgages where the money is used to pay for an education or a house. This is not the case with other types of loans though, where the money can be used for any purpose and this is certainly the way it works for short term loans. These loans are available for anyone to use for anything. This means that if you do need money to pay for food, then they could be a useful type of loan to use and certainly should be one that you should consider. There are different types of short-term loan though and it can be worth understanding what they are and the differences between them so that you can choose the best one for you.
Which would be the right type?
The most well-known short-term loan is a payday loan. With these loans you can borrow small amounts of money for a few weeks. These could be useful for buying food, if you know that you will be able to repay everything that you have borrowed when your next pay day comes. These loans will be cleared very quickly by a lump sum payment on the day that you are paid. However, you will find that you will need to find a chunk of money and you might prefer to repay in instalments. If this is the case then an instalment loan might suit you better. This is very similar to a payday loan but you will not have to repay it in a lump sum. This can be helpful, particularly if you borrow a larger sum of money as you will be able to repay over a longer time period. If you need a really large amount, which is unlikely if you are buying food, then there are other types of loans that you can pick from.
Other ways to compare loans
It is also wise to compare loans on the price. Many people will want to pick the cheapest, but do look and see what the different loans offer as it is a good idea to take a look to see what will give you the best value for money. Think about what you are looking for in a loan and a lender and see which matches up the most. It can be easy to rush into a decision like this, especially if you need to buy food and are hungry or have a hungry family to feed. However, it can have a big impact on your future and what you will be able to afford then so make sure that you are careful about what you are signing up for. If you pick the best loan for you, then it should be easy for you to repay and give the money that you need and when you need it. Repayment can be something that we tend not to think too much about when borrowing money. However, if you can calculate how much you think that you will be able to repay then you will be able to find a loan that will have the right repayments terms for you, whether that means a lump sum repayments or monthly repayments. There are a lot of short-term lenders and this should mean that you will be able to find one that will suit your specific needs.
Many borrowers will worry about interest rate increases
causing problems for them. If you are just managing to make your repayments
then you could find that any increase in interest rates could be a worry for
you. There are ways though, that you can avoid the stress of an increase in
interest rates and there might be certain types of loans which can help you in
this situation and other things that you might be able to do as well.
What influences rate changes?
There are several things that will influence whether the rate of interest changes. The main influence is the Bank of England. They have a base rate of interest which is the rate that the banks borrow form them at. If they change this, then it will make it cheaper or dearer for banks to borrow and they will reflect this change in how much they will then charge you. However, you may have a loan with a fixed interest rate and this will mean that you will not be affected by a base rate change during the term of the loan. However, a loan with a variable interest rate may change when the base rate changes. Lenders tend to put up their rates as soon as base rates rise but they may be slower to reduce rates if the base rate goes down. They may also put up their rates when the base rate does not go up if they wish to.
Choosing the right loan type
If you choose a loan with a fixed rate of interest, then this can help you to be protected against rate changes. Loans such as payday loans will have a fixed rate of interest and this will mean that if the Bank of England change the base rate there will be no change in interest rate on that particular loan type. A lot of people will choose that specific type of loan so that they can avoid the rate changes. There are different types of fixed rate loan and that means that depending on what you need the money for and how much money you have, you should be able to find one that will suit you.
Ensuring you have a plan for repaying
It may be too late for you to pick a fixed rate loan, if you already have a variable one or you may find that there is just not a fixed rate loan that fits in with your borrowing requirements. If this is the case then you may need to come up with other ideas with regards to borrowing, to make sure that you will be able to continue to make your loan repayments if the rates do go up. You will be able to select from a variety of things and it may be worth considering ding several anyway. In fact, you might want to consider doing some of them even if the rates do not go up as they could help you to more easily repay what you owe.
- Swap to a cheaper lender – There are big
differences between some lenders with regards to how much they charge for their
products. This means that you might be able to find one that is cheaper than
the one you are using. It is worth taking a look to see whether you can swap to
a cheaper one or even better to choose a cheap on from the beginning. Of
course, it is worth trying to find out why they are so cheap and ensure that
you are still getting good value for money despite the fact that it is so
- Pay less for other things you buy– we buy
a lot of different things and it might be possible to cut down on how much we
are paying or some of those things. This means that you should take a look at
everything you buy, including insurance, utilities and things like that and see
whether you can pay less. It might be that you will be able to swap that
provider that you are using or go to different retailers and pay less.
- Buy less things – many of us buy more
than we really need and this can mean that we can cut down if we need the money
elsewhere. It is always worth thinking about whether we really need the things
that we are buying and deciding if we can cut back in certain areas so that we
can save ourselves money.
- Sell things – it is possible that we may
have things that we no longer use or need and we can sell them to make some
extra money. This can generate a useful lump sum of money, but it can be
difficult to get a constant income from doing this. However, if you are
struggling to make ends meet or want to pay off a chunk of money that you owe,
then it can be useful for this.
- Make money from your home– if you own
your home, then it might be possible to make money form it, with your mortgage
providers and insurance companies permission. You may be able to take on a
lodger or run it as a B&B or you could rent out a garage, loft or driveway
to get some income. There are different options that you could consider which
should help you to generate some money.
- Work more hours– it can be really helpful
if you manage to work some extra hours. Extra income coming in can make a
really big difference. Therefore, whether you try to take on more hours in your
current job or look for other work this can be useful.