The Risks and Rewards: How To Choose Short-Term Loans Wisely?

When you need funds to cover a small, short-term expense, sometimes you have no option but to borrow. Perhaps your savings are low, or you are in between paydays, either way, some financial help is always welcome. This is where short-term loans can provide the cash you need if it is affordable for you. But what do you need to know about them before applying?

This article will provide you with some quick insights to help you make a smart decision that is both flexible and sustainable. Borrowing money isn’t without its risks, but there are advantages to be had when used wisely.

Short-Term Cash, Flexible Repayments

The main idea of a short term loan is to provide borrowers with cash that can be repaid over a short repayment period. Typically, you’ll be able to borrow for terms shorter than a year, for example, 3 to 6 months, making them a better short-term option than other types of borrowing such as a personal loan or even a credit card. As they have a shorter repayment period, the amounts you can borrow are also smaller, generally no more than £1,500. The reason for this is to ensure the repayments can be lower each month, meaning they are more affordable to sustain.

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Most lenders of short term loans offer flexibility, so unlike traditional payday loans, you can choose to repay over a few months rather than in full on your next payday. Sometimes it’s not practical to repay a loan in full within a month, depending on the loan amount, so having the option to choose up to 6 months to spread repayments is beneficial for many people. Whether you need to cover an unexpected bill that has taken your finances by surprise, or you need to cover essential expenses until your next salary date, there are many good reasons to consider a short term loan.

Rewards of Short-Term Loans

As mentioned, the flexibility of this type of borrowing is hard to ignore, but also the ease with which they can be applied for. Lender applications can usually be completed online in minutes at any time convenient for you. So, whether it’s the evening or early in the morning, you can submit your application and usually get a decision in minutes too. You could even receive the cash the same day if approved, as long as the application is during the lender’s business hours. 

Another advantage is that most short term loan lenders do not require borrowers to have a perfect credit score. Rather than needing you to meet a minimum score, they’ll focus more so on your financial history and your current affordability, checking that the repayments you choose fit within your budget. This means if you are someone with a poor credit history, you may still be able to find financial help. It can’t be guaranteed, but it at least provides an option for those who can afford to borrow despite having a low credit rating.

Risks of Short-Term Loans

As with any form of borrowing, you need to ensure you are doing so for the right reasons. You’ll need to pay interest on any short term loan amount, so it is important to check exactly what you will need to pay back. Fortunately, most online lenders allow you to see the interest charge before you apply, keeping the application transparent so you can see exactly what the repayment will be and what the amount to pay is. This way you can choose a repayment amount that is sustainable for you and then easily adjust the repayment term to fit.

You’ll need to ensure you can afford to maintain the loan as this will avoid any late payment charges and ensure you don’t hold onto the loan longer than necessary. Whilst they are easy to apply for, lenders can’t guarantee approval and will still need to check it is affordable for you. Avoid borrowing for the sake of it too, especially if you can resolve your short-term issue with savings or help from trusted friends and family. You want to avoid getting into a cycle of regularly borrowing and becoming reliant on credit. 

How To Choose Wisely?

When the time comes, and you need to quickly pay an unexpected expense, be sure to choose a lender that’s authorized by the Financial Conduct Authority (FCA). This ensures you are borrowing from a lender that follows responsible lending guidelines, doesn’t charge hidden fees and provides a secure, trusted service.

Also, be sure to compare your options to find the best type of short term loans to suit your budget and situation, comparing the flexibility of repayments as well as the interest charge. Always check the details of the loan agreement to ensure there are no hidden fees and that you understand the process for early repayment if you want to repay the loan in full earlier than the term date. With the right approach, you can find a short term loan that always works in your best interests.