Alternatives to short-term loans and when to consider them

If you’re wondering how you’re going to find additional funds to pay for this, you might be tempted by short-term loans. This type of finance can be in your bank in no time, but before you make your decision, there are a few factors to consider. We’ll explore the pros and cons of these loans, and some alternatives you might prefer.

What is a short-term loan?

A short-term loan is as you’d expect – a loan that will need to be paid back over a short amount of time. A payday loan is a good example of this type of finance, which is used to help the borrower pay for an immediate expense that they weren’t expecting when their income won’t stretch to cover it. Depending on the lender, the term of the loan may vary from a month to a year, and they typically offer smaller amounts to make them more affordable.

What are the pros and cons?

It helps to weigh up the pros and cons of these loans to help you make an informed decision. Firstly, short-term loans are incredibly accessible. They are easy to apply for with the process taking place online, and the approval rates tend to be high as the lender bases their decisions on affordability, rather than your credit score and how you’ve managed your money in the past. As well as this, funds can make it into your account within as little as 24 hours, meaning you can take care of your emergency easily. But you must also look at some of the potential risks. These loans can be expensive as interest rates are high to ensure repayment. The shorter repayment period can also make them harder to manage and failing to pay can have a detrimental impact on your overall financial health.

Alternatives to short-term loans

If you’re not convinced by short-term loans, or you think you’d like to try another option before you turn to this type of finance, there are a few alternatives that you could think about depending on your circumstances, which we’ll look at in more detail below.

Personal loans

These loans are offered by online and traditional lenders, and they tend to be a lot easier to manage than short-term loans. They are preferable when it comes to a long-term solution, and your bank won’t ask you what you’re spending it on – you’re free to do as you please if you are approved. These loans are paid back over a longer period, which means your interest rates will be lower. If your credit score is up to scratch, you may be approved for one of these loans more easily. However, if you have had credit, this alternative option may not be applicable.

Ask for an advance

If you are looking for an alternative to bad credit loans, a personal loan may not be available to you, but there is another way you could access funds to help you deal with an unprecedented expense. Asking for an advance. is something you can discuss with your employer if you find yourself struggling, they may be able to pay you a sum of cash early to help you out. If you are out of work, and claiming benefits, an advance on your monthly benefit allowance is also possible to help you when you need it most, and it will simply be deducted from your next payment.

Use your savings

Having an emergency fund is crucial for this exact reason. If you have an amount of money built up, even if it’s just a small sum, don’t hesitate to use it. Even if you’re saving for something else, using the money in your emergency pot is better than taking out a loan of any kind. You can build your savings back up over time, but a missed repayment or taking on a loan you can’t manage will remain on your credit report and reflect in your credit score. It could even push you further into financial difficulty.