Are Short-term loans Worth Considering?

There seem to be a growing market of short-term loans with different types available such as payday loans and log book loans. We may wonder whether we should consider taking out this type of loan or whether they are something that we should avoid.

Who are short-term loans for?

Short-term loans came about because there were no loans that were suitable for those that wanted money really quickly and had a poor credit rating. If you have a poor credit score then you will often be turned down for regular loans and may not even have access to a credit card or an overdraft or if they have may have maxed them out. However, as the loans are so fat to arrange it means that that are suitable for anyone that wants money really quickly and has no other quick way of getting hold of it.

There are limitations though in who can take out a short-term loan. It is necessary to be over the age of 18 and a UK resident. You also need to have a regular income. In the case of a log book loan you will need a vehicle as collateral and it will need to be worth more than the amount of money that you are borrowing. In the case of a payday loan you will need a bank account to set up a direct debit for the repayment.

Advantages and disadvantages

All loans have the disadvantage of being costly and sometimes stressful. With a short term loan the stress is usually short lived as it has to be repaid quickly, so as long as you have the money to be able to do this then it can be quite straight forward and repaid within a few months. There will still be cost of course and some people feel that they are much too expensive. The reason for this is that they are taking a risk because they do not do a credit check. This means that there is a chance that their customers may not repay the money that they borrow and so they charge extra to cover those costs. The costs mount up particularly if you do not repay on time. Then you get fees added on which can add up quickly. There is now a law though to prevent charges getting too high which should help.

However, the loans can be organised very quickly, possibly within a day and so if you need money in an emergency they are very useful. If you cannot borrow money anywhere else they are also very handy as chances are that you will be able to borrow money from them. They also require repayments when you next get paid which means that you do not have to worry about paying them back until you know that you will have some money to be able to afford to do this. They even set up the direct debit for the day that you get paid so that you do not have to remember to make the repayments. This means that there is no chance that you will forget to pay them. There is also a growing number of short-term lenders which means that they have to compete so they are providing better value for money and lower prices as a result of this.

Are they right for me?

It is always a good idea to think hard before borrowing money and make sure that you really need it. Ensure that you need the money to start with and that a loan with really is necessary. Then you need to make sure that you are getting the right type of loan. Loans differ in the amount that you can borrow, the repayment terms and of course the cost and so it is wise to check the different types and choose the one that is best suited to your needs. Then you need to compare different lenders to see which offers the best value for money. Once you have picked the loan you think is right you need to make sure that you will be able to afford to repay it. Take a look at how much the repayments cost and how many you will have to pay and think about how you will afford to do this. After all of this consideration you should be able to work out whether they are right for you or not.

If you are still not sure then it could be worth discussing with a friend or family member. They might be able to see things from a different point of view and this should help you to more easily make up your mind. They should be able to look at the advantages and disadvantages with you, let you know if they think there are any alternatives as well as looking at whether they are good value for money or not.

Should I Extend my Credit Limit on my Credit Card?

Many of us have credit cards and sometimes our lender will increase the credit limit and other times we might ask for it to be put up for us. It is something that we should be wary of though and think hard about for a variety of reasons.

– Gives us more money to spend. Obviously we want to borrow money so that we can have more money to spend. It will help us to buy things that we need, pay bills or whatever. Sometimes we find that we are not managing and therefore need that bit extra to help us out. This can be useful as it can mean that we can manage our spending better without having to worry. However, once we increase our credit limit, it stays at that limit unless we ask the lender to reduce it. This means that we will always have access to this extra money. Although this can sound like a good thing it may not be. We may end up borrowing lots of money all of the time and this can be expensive as we will have to pay interest on it.

– Can make debt build up. It can then be easy to let the debt build up as we have easy access to borrowing. It can be tempting to only pay off the minimum too and not worry about repaying the debt. Although this can feel good as you can have the money as long as you need it, it means that you will be paying interest out each month and this can be really expensive. It may not seem much but if you add up how much you are paying in a year, you will find that it is significant, especially if you imagine what you might be able to buy with that money.

– Can affect our credit record. If you build up the debt so that you owe right up to your credit limit or at least higher than you have now then you may find that it has a negative effect on your credit limit. As different people use the credit report score in different ways it is difficult to always know what to do for the best. However, if you can borrow the least amount possible then this should help you to improve your credit score. Credit score is important in many ways. It is not just lenders that look at it as if you want to rent a home, take out a mobile phone contract or things like this a credit check will be done and you could end up not being able to find somewhere to live or being very restricted if you have a poor credit record.

– Can make future borrowing difficult. If your credit rating is not good then this can have an impact of the chances of you being able to borrow in the future. Potential lenders will look at your credit record so you need to keep this looking as good as possible. However, it is not just this that impacts your borrowing. You need to be able to afford the repayments and so if you borrow too much on your credit card, your minimum payments will be higher and you could end up not managing to afford repayments on any other types of loan. You may also feel that you do not want more debt as what you have is enough but if you need to buy things and do not have the money you will not have an option if you have used up your credit limit. However, if you increase your credit limit but do not spend the money, then it could be a useful way to get money in the future if you need it, although it will be expensive.

– Can be stressful. For some people debt can be stressful. Others may not find it so stressful but perhaps once it builds up or becomes a problem for them, then it starts to cause stress. This is not good as stress has all sorts of side effects which can make you feel really bad but also have impacts on your physical and mental health. Therefore if you can avoid having stress in the first place then you will be much better off. Therefore keep a close watch on how much money you are spending and think about whether you should increase your credit record and risk having your spending go out of control. You will know whether this is likely to happen to you or not, depending on your personality. Some people will be able to spend more when they really need it and then cut down when they do not but others will see an increase in credit limit as an opportunity to treat themselves to some new things and that is when it becomes a problem.