Many people experience occasional cash flow problems. The car breaks down, you want to avail of a special deal on your dream vacation only to discover that you are short a few hundred pounds. Waiting for your next paycheck is not an option, you’ve got to get your hands on some extra cash – and fast. A variety of financial institutions offer short-term small loans to get you over the hump. But is it a good idea to avail of these financial products? Let’s look at the main options and features as well as the advantages and disadvantages.
Short-term Small Loans – The Main Features
Short-term loans of between £100 and £1000 may be the solution to unexpected cash flow problems. The draw backs are the high-interest rates because in some cases, you may need to pay back a multiple of the amount of your original loan. Generally, terms and conditions are manageable but you will need to display documented proof of your ability to repay the loan within the given time frame. Failure to stick to the payment schedule can lead to spiralling interest charges and leave you unable to repay the loan.
Undoubtedly, short-term loans are a convenient way of securing much-needed funds. Without much delay, you can replace that washing machine or fix the car without having to wait for your pay check. The main advantages are:
- Fast loan approval and cash availability: Most financial institutions approve your loan application within 1-2 working days
- Less Strict: Approval is easier to come-by because financial institutions offering small loans do not carry out the same thorough checks as banks and credit unions.
- Short loan terms: The term of your loan is short, preventing soaring interest rates
- Easy to manage short-term financial commitments: It is easy to foresee your short-term financial situation and determine your repayment ability.
- Predictability: If you stick to the payment plan, you know precisely how much money you will need to pay on a weekly/monthly basis and how long it will take to clear the loan.
- Variety of options: While banks and credit unions offer long term loans at lower interest rates, financial institutions such as check cashing Nashville allow you to borrow small amounts against your pay check or the title of your car or motorcycle.
Short-term small loans come with several pitfalls, hence you need to read all the small print before you sign up and be a little financially savvy. Don’t be blinded by advertisement emphasising how easy it is to get these loans. Find out exactly how much your repayments are, how long the loan term and even go as far as researching the consequences of missing a payment. Most importantly, find out how much you will be paying in interest as well as how much your loan will cost you in total.
Difficulties can arise if you fail to make payments or are unaware of your eventual loan cost. The longer the term, the more interest you will pay.
Those advising against financial products like payday loans list the following disadvantages:
- Exorbitant Interest Rates: Some lenders charge as much as 500% in interest rates.
- Spiralling Costs: If you fail to meet your repayments, lenders may charge additional interest rates and render you completely unable to meet your repayments.
Short-term small loans are convenient but are costly. Your washing machine will end up costing you a lot more than the original price. In emergencies, title or payday loans can be a simple way of getting your hands on cash fast, however, every loan comes at a price and short-term small loans are expensive.
If at all possible, try to avoid signing up for such loans, perhaps start by saving a small amount of money each week so that you have a few hundred pounds for emergencies. If you do take out a title or payday loan make sure you can meet all the repayments on time and stick to the schedule.