A short-term loan refers to a loan that you settle within a concise duration, typically ranging from one to 12 months. Unlike a conventional loan, which is typically repaid over number of years, a short tenured loan is designed to be repaid frequently within a few months. Short term loans can be utilized for unforeseen circumstances like vehicle repairs or malfunctioning heating systems. The agreed upon borrowing amount with your selected lender will encompass the interest rate and the total sum you are obligated to repay.
The sum you can borrow is relatively minor compared to other forms of credit. The loan is repaid in monthly payments with interest. Brief-term loans are classified as high-cost short-term credit by the Financial Conduct Authority due to the high rate of interest charges. Brief-term loans are not secured, which implies that the loan repayments are not safeguarded by any ‘guarantee’ or collateral.
Certain loans are reimbursed within a shorter duration where you can borrow a specific amount of money and reimburse it over a predetermined period with reasonable and fixed payments. The lender will levy interest on the money they lend you, necessitating you to repay the borrowed amount along with the interest. An important benefit of an individual loan is that you can distribute the expense with easy installments over a specified time frame.
How do I know short term loan is right for you?
A short term loan is appropriate for an unforeseen expense or a sudden financial burden that must be addressed promptly. You might consider it as a temporary fix to cover the cost of something you are unable to afford at that particular time. If repaying in monthly payments (which includes the loan amount, interest, and any additional charges) is more manageable and affordable than paying for the expense all at once, then this could be a viable choice for you.
Acquiring a loan, even if it is for a minimal amount, is a significant financial obligation. It is crucial that you only borrow the necessary amount and that it is from a trustworthy, regulated lender.
When should I avoid short term loan?
While they serve a purpose, short-term loans are an expensive type of credit, so if you are facing financial hardships, this is not a viable choice for you. Taking out loans that you cannot afford to repay can result in severe financial repercussions, and excessive borrowing could trap you in an inescapable cycle of debt. Unpaid bills and delayed payments will have a lasting impact on your credit history for a maximum of six years, and this could hinder your ability to access credit in the coming years.
Another aspect to consider is the overall reimbursement. Observing the complete sum that you will reimburse with interest might catch you off guard, and it could be an expenditure you are unwilling to undertake. Never be enticed to borrow beyond your requirements or to utilize the funds for superfluous purposes.
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