With little to no savings and ever-expanding debts, many people are applying for short term loans to cover emergency expenses and consolidate their debts.
Short term loans are a quick and simple solution that provides you with quick access to funds during times of financial crisis. You can then use these funds to take care of emergency situations and take back control of your financial situation.
However, taking out a short term loan is a big responsibility and needs to be handled in a precise and efficient manner. That’s why, before applying for a short term loan, you need to understand the process and all the intricacies involved.
In this article, we’ll examine five things you need to know before applying for a short-term loan to make the loan application process much easier.
Let’s begin!
1) Borrow Only What You Need
When you take out a loan or any form of credit, you are making a financial commitment. For this reason, it’s essential that you borrow only if you absolutely have to and only as much as you need.
If you borrow more than what you need, you may be tempted to spend additional money unnecessarily. Borrowing less also means that you will have less to pay back.
Many short term loans have higher interest rates compared to regular personal loans. It’s important to remember that any extra that you borrow will just increase the amount of interest you pay back to the lender.
When taking out a loan, you need to first calculate exactly how much money you need. Then, once you come to a final figure, you can decide which loan option is right for you.
2) Make Sure You Borrow From a Regulated Lender
The early years of online loans caused a lot of concern. In addition to the high interest rates, many were concerned over hidden charges and how borrowers who fell behind on payments were treated.
To remedy this situation, the Financial Conduct Authority stepped in. In 2016, the FCA made it so that all low-credit loan companies and lenders had to pass a series of tests to keep their licences. Even now, lenders have a strict code of conduct they need to follow and maintain with borrowers.
Remember that any lending company or organisation that is not registered with the FCA is operating illegally. Be cautious when choosing your lender, and always ensure you borrow from only FCA-authorised and regulated lenders.
3) Interest Rates
No matter which type of loan you decide on, you will need to consider the present interest rates. Interest rates play a significant role in calculating the total amount of money you need to pay back.
For this reason, it is important to consider all your options and compare interest rates to make the best choice. Ensure that there are no hidden fees involved in the rate such as appraisal fees, processing fees, administration fees or prepayment penalties.
While these charges may not cause the interest rate to increase, they will add up in your monthly repayments.
4) Affect on Your Credit Score
With short-term loans, your credit score plays an essential role, serving as the life force of your financial well-being. When applying for a short term loan, you’ll need to carefully consider how it will impact your credit score.
Any payday or short term loan you take out will leave a mark on your credit record. Initially, you may think applying for multiple loans at the same time can increase your chances. However, this often has the opposite effect.
Applying for multiple loans at the same time can make lenders reconsider your application. They may think that you’re in financial trouble, and even if they would’ve wanted to lend to you initially, they may reject your application.
5) Read the Terms and Conditions Carefully
If you plan on applying for any type of loan, it is essential that you read the terms and conditions of your loan agreement carefully.
As you have learnt, every lender licensed by the FCA in the UK has a set of rules they need to adhere to. Additionally, they also have their own terms and conditions, and you need to feel comfortable with them before signing anything.
You are not under any obligation to accept any loan offered by a loan company or lender. Before you say yes, ensure that you read the terms and conditions carefully to avoid any complications at a later date.
To Sum Up
Short term loans offer a convenient means to access money quickly, especially if you have limited options. However, due to their high interest rates, these loans are best suited for rare occasions such as financial emergencies or unexpected bills.
While short term loans can be incredibly useful, it’s always a good idea to exercise caution when applying for one. If you need to borrow money, take time to research and compare loans and look at other credit options as well. Always only borrow what you need and try to pay it back as soon as you can.
With these helpful tips in mind, you can streamline the short term loan application process, receive the funds you need, and pay them back effectively.
