A short term loan, also known as a payday loan, is a type of short-term borrowing designed to assist individuals in the case of emergency or unexpected occurrence. In these type of loans an individual borrows a small amount of money with a high rate of interest. The purpose of this type of loan is to ensure that people remain cash rich in the case of an unexpected expenditure. While the interest is high, the borrower receives the loan almost instantly, and pays it back in a short amount of time; usually their next payday.
With the economic downturn, traditional forms of credit have become harder to access and incomes reduced, resulting in the boom of the short term loan. Payday loans are primarily used for making unexpected purchases and providing short-term relief for a financial crisis, when cash flow is tight. They are used for the purchase of single items. They are not effective in helping settle monthly living expenses or bills. When used for this purpose, individuals run the risk of taking out another loan after re-paying the first, and falling into an ugly cycle. Short term loans are completely legal. However, one of the biggest issues surrounding the payday loan is the high levels of interest associated with it. The average borrower can end up paying up to 400% interest on a two week loan of around £200. For this reason, it is important to use this type of loan for its intended purpose only. Here are…
8 top tips for getting a short term loan
1. Consider Your Problem: What do you want to take a payday loan out for? If it’s for general living expenses or bills then the payday loan is not for you.
2. Shop Around: Not all payday loan companies are the same, and some will try to rip you off. Read about them, and make sure that you choose one that offers loans with relatively good terms.
3. Use A Single Lender: Using more than one short term lender is a big mistake. Never secure more than a single loan against any given paycheck.
4. Don’t over-borrow: Short term loan interest rates are very high, so make sure that you don’t borrow more than you know you can pay back quickly.
5. Read The Fine Print: Many payday loan companies hide certain fees, restrictions and rates in fine print. Don’t be another consumer who finds out about them only after taking the loan, read the fine print beforehand!
6. Don’t Loan Re-cycle: NEVER use a short term loan to pay off another loan. This is a sure way to find yourself in a pool of consumer debt.
7. Get A Low Interest Credit Card: If you’re considering a payday loan, you’ve run into an emergency situation. Set aside a low interest credit card in order to deal with this type of the situation in the future.
8. Talk To Your Credit Card Company: Consult with your credit card company to see if there’s anything you can do to lower your APR and your monthly payments.