Despite one's best efforts to plan, save, and budget, it is still a completely common occurrence to miscalculate and be unprepared for monthly bills. Because being down on one's luck is looked at more as a personality defect rather than a regular, if not unfortunate, occurrence, people regularly feel ashamed to admit when they need financial help. In situations like this, where a borrower cannot or does not wish to ask for financial aid from family or friends, finding short-term loans may be one's best bet to get back on track.
What is a Short-Term Loan and How Do They Work?
A short-term loan is a tactic people use when there is an immediate and pressing issue that requires money to fix. The idea is that the loan will be paid back quickly (within a few weeks) so that there is no lengthy history of debt, unlike credit cards that expect the borrower to take their time paying back the loan.
Because a short-term loan is expected to be repaid in a few weeks, the borrower should borrow with care. It is easy to let the idea of extra money steer the wheel of one's imagination, but it is important to remember that the money needs to be returned within the month in one lump sum. In other words, if someone were to borrow £500 with a £15 fee for every hundred dollars borrowed, the borrower would owe £575 by the end of the month. When figuring out how much money to take out for a short-term loan, the borrower should remember to take only what one can comfortably pay back.
What are the Different Types of Short-Term Loans?
Despite personal loans having a lot of commonalities (30 day payback dates, smaller and capped amounts that can be borrowed, etc.), there are several different places to look for and ways to go about getting a short-term loan.
Personal Loans
If credit checks are not a concern, personal loans are an easy way to get a short-term loan. Personal loans usually require the borrowers signature and a credit check. The borrower and the lender agree on a fixed rate to pay for each month for the duration of a loan. There is no collateral required. This is the most generous short-term loan, as they often range from £3,000 to £100,000. However, if the borrower does not have an outstanding credit score, they may want to explore other ways to achieve a short-term loan.
Personal Lines of Credit
Personal lines of credit allow for the borrower to borrow from the line of credit as needed. This is a lot like having a credit card with a set amount. However, similarly to the personal loans, these loans issued by banks are usually given only to those with excellent credit and those borrowers have to pay a very high interest rate.
Payday Loans
Payday loans are small loans (usually £500 or less) that are given to borrowers with the expectation that they will repay the loan as well as the fees within the month (or during the borrower's next paycheck). Some places will allow for loans to be paid over the course of a longer period of time, but because the interest rates are so high, it would be best if the borrower paid it back in full as soon as they can.
What are the Next Steps?
If the borrower has the capacity to go talk to a personal banker, that would be the best option. If the borrower belongs to the bank, they may get better rates. There are also other ways that they can help. For example, a personal banker may be able to review the financial information of the borrower. Sometimes this can result in discussions around how the bank can help the borrower to consolidate debt as well as provide liquid money for the borrower to use.
Unfortunately, this is not the case for most people. If a borrower is in a financial bind and needs help right away, or does not have stellar credit, or maybe does not have a bank account, then the bank may not be the best place to start. For people facing the issues outlined directly above, consider looking up payday loan lenders in their area. Simple Google searches will allow for interested borrowers to figure out which loan would benefit them the most.