*Collaborative post

 

We all know what it’s like to be a bit tight for cash, whether it was in your by-gone student days or is a frequent occurrence as a parent. Short term loans are one way to borrow money for a short period. They can be a very helpful tool, but have some drawbacks depending on your circumstances. This guide from cashasap.co.uk, who are direct lenders of short term loans, helps you understand the pros and cons so you can decide whether they might be a good option for you.

 

What Is A Short Term Loan?

A short term loan is, as the name suggests, a way to borrow money over a short period. There are two varieties of short term loans: payday and installment loans. 

 

Both are intended to cover sudden expenses which you couldn’t have foreseen, like a car repair or emergency plumber, and for which you therefore couldn’t budget. They’re not for luxuries or things that can wait, but for immediate expenses that you can’t get by without.

 

Payday loans: A loan intended to get you through to your next payday. They are paid off in one single payment on the date specified by your direct lender. They can last anywhere from 1 day to 36 days, so you’re covered until payday.

 

Installment loans: Very similar to payday loans in terms of the amount of money available to borrow, but they are designed to be paid off in a series of monthly installments. This is normally three, but could be as many as six depending on the lender.

 

Installment loans are often a more expensive way to borrow than payday loans — you end up having to pay more because you’re borrowing money over a longer period — but they have the advantage of spreading the cost of repayments if you’re less confident about paying back your loan all in one go.

 

The amount you can borrow through a short term loan will vary between different direct lenders, but usually ranges between £100-£500 for first time borrowers, with most lenders increasing the limit if you’re a returning customer.

 

Direct Lenders

Direct lenders is a term that describes a company or organisation that will lend you the money themselves. This is opposed to brokers, who are third parties that work with multiple lenders, like a middle man. Price comparison websites are a form of broker.

 

Pros And Cons Of Short Term Loans

Short term loans can be really beneficial, but only in the right circumstances. If you’re looking to borrow money, then read the pros and cons so you can make an informed decision.

 

Pro: Instant Cash

By far the biggest pro of short term loans, they’re a way to get instant cash. When you’re in a fix and need money quickly, short term loan direct lenders have same day turn-arounds. It means that you can pay for an emergency repair or unexpected bill on the same day that it comes about.

 

It’s operated through bank transfer. You apply online and the money is transferred to your bank account on the same day.

 

Con: More Expensive

However, instant cash over a short borrowing period does come with a higher APR than you see on longer loans and credit cards. They are one of the most expensive ways to borrow money.

 

However, APR is a percentage of the cost to hypothetically borrow the money over the course of a year, so doesn’t actually provide the most easy way to recognise the price of a short term loan which only runs for a short period. The best way to understand the cost is to look at the overall price of the loan, which will always be specified.

 

In reality, it might look like borrowing £100 for 10 days and paying back £110 — but this will vary between different lenders.

 

Pro: Acceptance Rates

It’s easier to be accepted for a short term loan than it is for a mortgage, car payment plan or longer term loans. Direct lenders still won’t loan to people with very bad credit scores — this is partly because they want to ensure they will get paid and partly for your benefit, so you don’t get into further financial difficulty — but they will lend to those with thin credit files or lower scores than might be accepted on longer term loans.

 

Con: Credit File

Borrowing money well improves your credit rating. If you borrow through payday or installment loan and pay it back on time, it could improve your credit score. However, your credit file will show that you applied for a short term loan.

 

This won’t be a problem for most people, but will likely prevent you from being approved for a mortgage in the near future. Having applied for a short term loan is a sign of financial instability, and mortgage providers don’t want to lend to those that might not make big payments on time. However, most people who apply for a payday loan aren’t looking to get a mortgage within the next few years, so it’s often not a problem.

 

Pro: Flexible Short Terms

Short term loans come with a lot of flexibility. With payday loans you can specify the precise day on which you want to pay your loan back, usually any time within 36 days. This gives you a lot of flexibility so you can get a loan that matches you needs.

 

They also allow you to specify to the nearest pound how much you want to borrow. This means you’re not borrowing more than you need and paying for the excess.

 

Short term loans have a lot of different pros and cons. It will depend on your specific circumstances as to whether a short term loan is a good option for you. The main thing is to only go for a short term loan if, firstly, you know you can definitely pay it back on time and, secondly, you do need it. If the payment or purchase can wait until after your payday, or you can save up for it, then you should wait instead of getting a loan.

 

If you want to know more about short term loans, visit FCA authorised and regulated lenders, cashasap.co.uk. If you want financial advice, then use a service such as the Money Advice Service to get some free, professional help.