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If you are thinking of turning to a short-term loan to solve a financial crisis, it is a logical solution. A small loan to cover expenses is something that many people find themselves needing.
This is truer now more than ever, with so many households experiencing fiscal challenges due to an economic slowdown caused by COVID-19. Millions have lost their jobs, had their hours cut back, or are struggling to cover the rising cost of living. Here is some valuable information about short-term loans:
Simple applications process
Many borrowers favour these transactions because you can apply for short-term loans online, and approval usually takes a matter of hours. Therefore, you will have the money in your bank account quickly.
Lenders require some documents to grant a short-term loan, and you should have these available to attach to your online application. These include proof of your identity and income. Lenders need to ensure that an applicant is not committing fraud by applying for a loan using someone else’s identity.
They must also know that you are of legal age to enter a loan contract. If you are under 18, the law does not regard you as an adult. Therefore, a contract you enter would be deemed null and void, and the lender would have no recourse to recoup its money.
A lender does an affordability check against your proof of income to ensure that you can repay a loan. Many private lenders have been brought to book by the ombudsman for issuing loans in the knowledge that the borrower would face enormous difficulty in repaying them. The lender keeps its pockets with interest charged on an outstanding balance, and the prospect of repayment becomes crippling.
Payday loans and short-term loans
These two terms are used interchangeably as they are based on the same premise. However, there are some differences. The primary distinction between a payday loan and a short-term loan is that a payday loan is meant to be settled within a matter of weeks, whereas a short-term loan has a duration of a few months. Typically, lenders offer about three months for the repayment of a short-term loan.
Lenders do not offer short-term loans for small amounts, and most would only extend short-term loan conditions to loans of over a thousand pounds. Lenders have differing thresholds for how much you need to borrow to qualify for a short-term loan. This should be part of your research if you are looking for a loan and know that you will need two or three months to repay it.
Interest rates
Short-term loans come with an interest rate attached to them. Lenders might offer different interest rates. Now that you can apply online, shop around, and look for one that gives clients competitive interest rates. A small variance in the interest rate can make quite a difference to your repayment amount.
Do not expect to receive the advertised interest rate if you have a less than stellar credit history. Some terms and conditions apply to securing this interest rate, among them being a good credit score. Consumers must accept the consequences of the financial choices and decisions they made in the past. These records are accumulated on a person’s credit history and factor into their credit rating.
Many private lending companies have a less stringent approach to borrowers with troubled credit histories than banking institutions. They do not necessarily decline a loan application because of the applicant’s credit score. Nevertheless, they will regard the transaction as riskier than a client who has an outstanding credit record. To compensate for this risk, the lender may charge a higher interest rate.
Advice for taking out a short-term loan
Shopping around for the best available deal cannot be stressed enough. Now that applications are made online, clients are no longer bound by location. In the past, they would only have access to lenders running physical operations in their neighbourhoods. This is no longer a limitation now that you can look online. Lenders require differing amounts of documentation, and some might ask a lot more questions than others. Look for one that meets your needs.
While we were taught as children to avoid debt, it is impossible in these challenging times. Short-term loans have the advantage of being settled quickly, thereby not burdening you with a millstone of instalments around your neck for the next few years. Therefore, although the interest rate is higher, you will end up paying less because of the loan’s duration.
That said, do not borrow more than is necessary. It might be tempting to add a couple of hundred pounds to your loan amount to ease financial pressure, but this should be your last resort. Some borrowers overextend themselves and end up borrowing more money to repay current debts. This is a hamster wheel that leads nowhere, except to escalating debt and declining hope of ever being free of it.
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