A short-term loan is one kind of loan that can be helpful when you need money.
When you’re facing a cash crunch, or going through a phase where you’re in need of funds, being aware of your options can help you stay calm and deal with the situation appropriately. When in need of funds, the two main ways you can go about it is – borrowing from family and friends, or borrowing in a form of a loan.
There are several types of loans available, and knowing what they are, and what the differences are can help you make the right decision. One type of loan that can be useful when you’re in need of funds is a short-term loan.
What is a Short-term Loan?
A short-term loan is a loan that is paid back in a short period of time, usually less than one year. However, some short-term loans can be repaid over longer periods of time, such as 18 months. Short-term loans are typically used to cover unexpected expenses or emergencies, like paying for a medical bill or moving expenses. It can be a temporary solution until you can get back on track financially and get back into a positive cash flow position.
When is a Short-term Loan the Right Choice?
Knowing how much you can afford to borrow before taking out a short-term loan is important. Even when you compare short-term loans online and find the best rate available to you, it can still be an expensive way to borrow.
You should only take a short-term loan if it’s your best option. You must have a clear path to repaying it within the timeframe and without falling into a cycle of monthly debt. However, a short-term loan can actually be a cheaper option than going into an unarranged overdraft, so this can be the right choice as long as you have a clear plan in place.
Who Can Get a Short-term Loan?
Anyone can get a short-term loan. This is because there are no restrictions on who can apply for these loans, including young people over the age of 18, students and even those who have been through previous financial difficulties. However, it is important to note that the lenders will usually require you to have a good credit score or proof of assets and income before they approve your application.
How Much Does a Short-term Loan Cost?
When your short-term loan gets approved, you have to pay the following charges:
Therefore, in order to make the right choice, you can compare multiple loans to find your best option.
A personal loan with early repayment is an alternative to a short-term loan. This type of loan looks similar to a credit card, but the lender will require you to pay it back within a set period of time.
If you need money quickly, a personal loan with early repayment is one option. You can take out a small amount of money and pay it back in full within the time frame given by the lender. You can use this type of loan if you have good credit and hope to pay it back quickly or within your budget.
An overdraft is when you allow your bank account to go into the negative. The result is that you owe the bank an amount of money for the charges that were incurred on your account. When you have an overdraft, it’s important to ensure that none of those charges go against your daily or monthly limit.
Peer-to-peer lending is a type of online lending where individuals lend money to other individuals. The individual looking for a loan will post their request on the site, and receive a number of responses from people who are able to lend them money. These individuals are called lenders.
Peer-to-peer lending platforms offer borrowers and lenders a chance to earn interest on their loans. This can be done in two ways: by providing an interest rate, or by charging a fee for each loan made on the platform.
Peer-to-peer loans have become increasingly popular as more people look for alternatives to traditional bank loans.
There is a difference between Payday Loans and Short Term Loan. A payday loan is to be paid back either in a single go or within a couple of months, on the other hand, Short Term loan, is always an instalment-based loan but for a short term like 6-24 months.
A guarantor is a person who can legally vouch for your ability to repay a loan. In other words, your guarantor will be responsible for paying off the loan if you don’t. A guarantor is not required for a short-term loan; however, having one is always a good idea.
If you fail to pay your short-term loan on time, it might take a hit on your credit score; however, paying back short-term loans in their original repayment tenure may help you improve your credit report.
Short term loans are safe as long as you borrow it from a lender who is authorised and regulated by the Financial Conduct Authority (FCA).
The answer is yes. Short-term loans usually come at higher interest rates than unsecured loans. But just how high this interest rate is set depends on your credit score and affordability.
When you have a poor credit history, the amount you can borrow is limited, and the APR is higher in most cases. However, some lenders may approve your loan application as long as you have a regular income and you can afford the monthly payments.
You can have multiple short-term loans simultaneously; however, doing this may make it hard for you to pay back the amount you’ve borrowed.
The rate you are offered will depend on your individual circumstances.
Representative APR Example: On an assumed loan amount of £2,600.00 over 36 months. Rate of interest 41% per annum (fixed). Representative 49.7% APR. Total amount payable £4,557.89 of which £1,957.89 is interest. 35 monthly repayments of £126.61 and a final payment of £126.54
Warning: Late repayment can cause you serious money problems. For more information, go to MONEYADVICESERVICE.ORG.UK
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Think carefully before securing debts against your home. Your home may be repossessed if you do not keep up repayments on any debt secured against it.