When looking to borrow money to help you cover short-term expenses, you ideally want to find something easy to apply for, that lays out all the information you need clearly and provides affordable terms. However, it isn’t always simple to understand what you are signing up for and can feel like making an informed decision for your finances is far from easy. The good news is, short term loans don’t have to be complex, and choosing a lender can be made effortless once you know what to look for.
Below, we’ll help explain some of the main terms and repayment details you should look out for and help you make the right decision for your situation, whether it’s a financial emergency or an unexpected bill.
Do You Need A Short-Term Loan?
Firstly, before you go ahead and apply for one, you need to ensure it’s something you actually need. Ideally, you don’t want to be applying for one unless it’s the best solution for your current situation. So, that means not using them for non-essential expenses and only in an emergency.
You should only apply for credit if it is necessary and you do not have other means to help, such as savings that you can use or the help of family or friends if this is an option. If you have a genuine short-term expense that can’t be avoided, is unexpected, and cannot wait until your next pay date, this is where short term loans can be an ideal solution. Just be sure that they are affordable for you, will not cause any financial strain, and can be sustained for the whole term.
Key Terms to Understand Before Applying
- Interest Rates – This is the cost you pay for borrowing money, and with short term loans, this is often a higher annual percentage rate (APR) than longer-term options like a personal loan. This will significantly affect the total repayable amount.
- Fees – Look out for any admin fees (charged for processing the loan), late fees (if payments are missed), and early repayment fees (if the loan is settled early). Every short term lender is different, so it is better to not assume and read the finer details before signing an agreement.
- Loan Amount and Term – How much you choose to borrow and how long the repayments are will influence the total loan charge. Consider that you may have to pay back more in interest the longer you spread the repayment term. If you can afford to pay more each month for a shorter repayment term, this can work out better if it matches your budget.
- CPA – Many lenders will use a Continuous Payment Authority (CPA) to take repayments automatically. This means that all you need to do is ensure enough funds are cleared in your bank account before the due date each month, making it easy to repay the loan.
Repayment Tips – How To Make The Best Choices With Your Loan
To manage your short-term loan repayments effectively, you should consider the following before you apply:
Budget Adjustment – You should check your income and outgoings and ensure you can afford the loan repayments. You don’t want to agree to a loan that will put unnecessary strain on your current finances. Be sure you can still afford all of your essential outgoings first such as your rent, mortgage, utility bills, groceries etc.
Pay by CPA – As most lenders use them, this is the most convenient way to pay. Be sure to note the due date and ensure funds can be cleared at least the day before so this can automatically be taken. A CPA ensures you can always pay on time, which is better than paying by bank transfer which can easily be forgotten.
Extra Payments – If you can, make additional payments to reduce the total amount faster. This will also help to reduce potential interest overall. Be sure to check the small print to ensure the lender will allow for this, and also consider if there is any fee for early settlement.
Communication with Lender – If you foresee difficulty meeting the repayments, contact your lender ASAP. They may offer extensions or payment plans for any arrears, so it is best to speak to them in advance when you can.
There are many advantages that short term loans bring to borrowers, but they need to be balanced with the risks. Whilst they offer flexibility with repayments, generally offering between 3 to 6 months to repay, and provide a quick way to borrow in an emergency, you should carefully check how much the loan will cost in interest and if you can sustain it.
All Financial Conduct Authority (FCA) authorised lenders are transparent with the terms, so be sure to check how much you need to pay back in total. If then you are happy with the terms, and they are affordable, you’ll be able to sustain repayments whilst resolving your short-term issue.
Written by Kelly Richards
Author Bio: Kelly is the founder of the Cashfloat blog and has been working tirelessly to produce interesting and informative articles for UK consumers since the blog’s creation. Kelly’s passion is travelling. She loves her job because she can do it from anywhere in the world! Whether inspiration hits her while sitting on the balcony of a French B&B, or whether she is struck with an idea in a roadside cafe in Moscow, she will always make sure that the idea comes to fruition. Kelly’s insights come from her knowledge gained while completing her degree in Economics and Finance as well as from the people she meets around the world. Her motto is: Everyone you meet has something valuable to teach you, so meet as many people as you can!
