Options For When You Need A Short-Term Loan
For borrowers looking for short term loans, there are loads of great options. In this article, we are going to lay out the pros and cons of some of the most popular short-term loans, so that our readers can be as informed as possible.
Payday loans (also known as ‘quick cash’ or ‘quick loans’) are among some of the most accessible loans out there, often seen to be a good fit for people with bad credit who need money quickly. Some lenders even offer access to cash within 24 hours. Applications are quick and easy, either done over the phone or via an online form. The process can take minutes. The majority of loans, like mortgages or business loans, require extensive credit checks and personal information. Payday loan companies only need a few essential criteria to be fulfilled. These include having a stable income and a bank account. It is easy to see why quick and fast cash without many barriers would be attractive to borrowers.
They also aren’t secured to a property, so if you’re unable to pay your house isn’t at risk. That doesn’t mean there aren’t huge risks. Payday companies are known for passing debts to collection agencies and taking debtors to court. Payday loans are highly expensive, with costs rising exponentially as the debt goes unpaid. It is by far the loan with the highest interest, two or three times higher than credit cards and personal loans. They don’t help you build a credit score, and are considered predatory due to their focus on people who are in desperate circumstances and can’t go anywhere else.
A credit card is a loan that gives you a line of credit of a pre-accredited amount, called a ‘credit limit’. When you spend that money, your bank or credit card company loans you that money to make a purchase. Credit cards involve monthly payments either for the whole debt, a partial amount or for a monthly minimum payment. Most card companies give users a grace period of 20 to 30 days before any interest is put on top of the amount they owe.
With credit cards, you can buy now to pay later. You don’t have to set out a repayment schedule like with bridging and payday loans. The money is available, and you can organise how to pay it when it is convenient for you. Credit cards are flexible – you choose how much you repay. The minimum monthly repayment is often very low, between £5 and £25, so you don’t have to find the money right away or pay it off in one go at all.
Credit card debt can build up gradually, making it dangerous for people with excessive spending habits. The cost of spending on a credit card and repaying it within a few months is often reasonable. However, when debt is left unpaid, debt can mount up quickly. Missing payments can significantly damage your credit score, affects your ability to make large purchases like buying a home.
We strongly recommend getting unbiased and free financial advice from sites like the moneyadviceservice.org.uk and moneysavingexperts.com or debt consolidation companies before going down either of these avenues so that you can learn more about sensible and responsible borrowing.
Bridging loans are different to the above lending options as they are large amounts secured against a property or asset.
Bridging loans act a bridge between when funds are needed and when funds are going to be released from an asset, most commonly a property. Individuals, property development companies, and corporations use bridge loans to provide funds on short-notice notice. Bridge loans can be small and large loans.
Bridge loans are priced monthly instead of annually because they are designed to be taken out only for short periods. They have higher than usual interest rates because funding is easily and quickly accessible. Credit histories aren’t as relevant as, for example, mortgages because bridging loans are secured against an asset.
Borrowers should be aware that they should have a clear repayment plan in place; this involves typically selling a property at a later date or remortgaging the house in question. Most bridging loans have predictable costs when there is an exact repayment schedule.