Short-term loans are the most popular type of loan in the UK at the moment. Every day, thousands of people apply for a short-term loan for one reason or another and there are many valid reasons for doing so. Here are 6 scenarios where short-term loans are useful.
You Pay Less Interest
Interest rates on short-term lending have a much higher APR than longer-term loans, which make them more expensive, right?
That is true to a certain extent, however, it is worth remembering that APR stands for Annual Percentage Rate, in other words, how much it will cost you to have the loan over a year. This is certainly relevant for long-term loans as you are likely to have them for a year or longer. However, short-term loans are designed to last anything from a few days to a few weeks and you will not accrue a lot of interest over that time. Therefore, although the APR looks bigger for short-term loans it will not cost you as much to pay them back in total. Short-term loans are useful if you know you will not need the money for long.
To Maintain Cash Flow
If you have too much month left at the end of your money, short-term loans can be useful. It may be that you had a lot of expenses at the beginning of the month and your wages aren’t going to last you until payday.
Self-employed people can often have cash flow issues if they need to pay bills, but their customers are late paying their invoices. This means that for a brief time, a tradesperson is waiting for money coming in and needs to pay for something else. A short-term loan is an effective way of bridging that gap.
To Pay an Emergency Bill
There is always something that needs to be paid for and it seems that the more you own, the more likelihood there is of something going wrong, which makes it necessary to get your hands on some money quickly. It might be that your car breaks down or your domestic appliances stop working. Whatever the issue, it can be frustrating and if you don’t have the money in the bank to pay for repairs, it can cause serious issues.
A short-term loan is designed to be in your bank within hours so that you can fix your car, domestic appliance, or whatever else is causing you a financial headache and get on with your life. Luckily, there are a lot of short-term lenders who specialise in this type of loan, and Payday UK is a broker that specialises in comparing Pay Day Loans to make sure that you get the best deal available in a timely manner. You can choose from a panel of top loans providers.
Poor Credit History
If you have a poor credit history, you might struggle to get a loan from the bank or be approved for a credit card. If you need money quickly, you haven’t got time to trawl through dozens of different lenders who all want to do credit checks and make your credit score worse. Many short-term lenders are happy to lend to people with poor credit history as they are not lending over a prolonged period and, therefore, your ability to repay is unlikely to change in the time it takes you to pay the loan off.
No Credit History
Believe it or not, having never borrowed any money in the past can have as big an impact on your credit score than if you have a history of not repaying your debts. This is because a lender likes to see how you have behaved with finances in the past to assess how you might behave in the future. If you have never borrowed before, they have nothing to base their lending decision on, so they view you as being high risk.
This is unfair as you have never had a chance to prove yourself but by borrowing money on a short-term loan and paying it back when it is due, you build up your credit score and are viewed more favourably by other lenders. This means that when you want to take out longer-term credit, you are more likely to be accepted.
It can be useful to take out a short-term loan if you see a bargain that you have to have that may not be around by the time you have the money to pay for it. For example, you need a new winter coat, and you find one that has a 50% reduction. You know the sale is going to be over by the time you get paid and it is cheaper to take out a short-term loan than pay the full price a few weeks later.
These are six scenarios where short-term loans are useful but there are many more. After all, there are hundreds of reasons why people take them out every day.