Seven Questions to Ask Before You Get a Short-Term Loan

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Seven Questions to Ask Before You Get a Short-Term Loan

In some situations, getting a short-term loan is unavoidable. Whether you’ve had a plumbing emergency at home, your cat has injured themselves and needs a trip to the emergency vet, or your washing machine has broken down and needs replacing as soon as possible for life to get back to normal, a short-term loan can help you get by and cover any expenses that you hadn’t planned to be dealing with this month. Not everybody can afford to put away an emergency fund or perhaps you have some emergency money available, but it’s not enough to cover everything that you need to pay out. A short-term loan can help to bridge the gap with flexible repayment options that you can easily manage by spreading them out over the next few months. However, before you apply for a payday or short-term loan, it’s important to keep some important factors in mind. 

How Reputable is the Lender?

If you need short-term cash, it’s important to shop around rather than borrowing from any old lender. The good news is that unlike in the past, most payday loan companies today are very responsible and work hard to ensure that they are treating borrowers fairly. There are many stringent regulations that these companies must adhere to if they want to continue trading, including credit checking applications thoroughly, checking affordability, and capping interest rates and charges at a fair amount. The best way to find a reputable payday lender is by using a trusted broker like New Horizons. Simply enter your details into the site and New Horizons will search for products from trustworthy and responsible lenders to help you find the best loan option for you. Find out more at newhorizons.co.uk. 

How Much Can You Afford to Repay?

It’s worth getting a few different loan quotes wherever you can since different lenders typically have different rates of interest, all of which can affect your monthly repayment amount. Before you borrow, it’s crucial that you are aware of the amount you will be required to repay each month and have made sure that it is something you are financially able to do. Borrowing money that you can’t afford to repay might help you cover the expenses you have in the present but it will lead to serious money problems in the future that could see you trapped in a nasty cycle of debt where you continue borrowing to make up the shortfall and ensure that your repayments are made. Take some time to work out how much money you have coming in and what your expenses are, to determine how much you can comfortably afford to pay back to a lender each month. 

How Much Do You Need to Borrow?

A common mistake that many people make when getting a short-term loan is to simply go for the highest amount of funding that is available to them without thinking about the consequences. And it’s a common issue because many payday loan websites do make you aware that you could get more than what you’ve applied for. But however tempting it might be to jump at the chance to get some extra money, consider whether or not you really need it. If you find that actually, there are some things that you need to pay for that you’ve been putting off for a while like repairs to your home or car, it might be worth taking the additional money if you can take advantage of a good interest rate and will be able to afford the repayments. However, if you can’t think of a good reason to borrow any extra, then limit yourself to only the amount that you need to cover the expense you’re dealing with. 

When Are Repayments Due?

When you apply for a short-term loan, you will typically be given the option to choose a repayment date that works best for you. It’s important to carefully consider the date that you choose since your payments will be due on this date for the duration of the loan. Typically, you will be given the option to choose your payday since this is going to be the easiest day for you to make the repayment. Set up a direct debit or other automatic payment to come out of your bank on payday or the day after, so that you can make repayments worry-free. 

Will You Be Accepted?

While short-term and payday loans do tend to have higher acceptance rates compared to bank loans and credit cards, don’t assume that just because you are applying for a short-term loan, you are going to be accepted. In order to meet strict standards, short-term and payday lenders are required to carry out credit checks and affordability checks on applicants, so it’s a wise idea to know where your credit rating stands before you decide to apply. Another good option is to use an eligibility checking tool that performs a soft search rather than a hard search to provide you with options that you are likely to be accepted for without impacting your credit rating. Once you have some options. you know that you are likely going to be safe to apply with a very low risk of rejection. 

How Will it Impact Your Existing Debts?

If you have existing debts that you are already repaying, it’s important to consider them when determining whether or not you should apply for a short-term loan. Bear in mind that your overall level of debt can have a negative impact on your credit score, so it is worth keeping this in mind before you borrow, especially if you want to improve your credit rating. However, that being said, if you are responsible for making repayments and ensure that managing your debt is affordable to you, your credit rating should improve as you pay the debt down. 

Are There Any Alternatives?

Finally, consider whether or not there are any alternatives to borrowing you could take advantage of in order to avoid getting into debt. If you have to deal with an emergency expense and need to access funds quickly, it’s worth taking a little bit of time to determine whether or not there are other ways to get that money without it impacting your credit score. For example, your employer might be willing to provide you with a small advance on your next wage to be repaid directly from your payslip next month or over a few months, or you could ask your family and friends if they would be willing to help you out. 

If you decide to borrow from family and friends, make sure that you communicate well about the terms of the agreement and decide on something that you can both work with. It may be best not to borrow from a friend or relative if they want you to pay back more each month than you can afford, for example. 

Lastly, check if you can raise any funds by selling things you no longer need. If you can afford to wait a little while, it’s worth listing old gadgets, furniture items, and even old clothes that you no longer wear on sites like Facebook Marketplace to try and raise some extra cash. 

In some cases, short-term loans are the best financial option – but be sure to keep these factors in mind before you accept the money.