There are now several different types of short-term loans
and it is good to make sure that you are picking the one that is most suitable
for you. Most people will choose this sort of loan if they have a poor credit
record or need money quickly and they can all provide this. However, there are
choices between different types and it is a good idea to understand the
differences between them so that you can decide which will suit your needs the
A payday loan is probably one of the most well-known short-term loans. It has probably been around for the longest and most people will have heard of it. What makes it different to other short-term loans is the fact that it only usually lasts for a few weeks. This really is short-term and borrowers are expected to repay everything that they have borrowed plus the interest on the payday loan that they have accumulated when they next get paid. These are good for anyone who really does not like being in debt and wants their loans to be over with as quickly as possible. It is also useful for anyone that just wants to borrow a small amount of money for a small amount of time.
An instalment loan does what it says and allows repayment in instalments. This is really handy for anyone that feels they will struggle with the lump sum repayment that is required for the payday loan. It may also allow borrowers to borrow a bit more money as they will be able to spread those repayments rather than having to find a way to repay a lump sum of money all in one go. Some people will just take out a loan without considering how they will manage to repay, but those that do might feel that repaying in instalments will mean that they have a better chance of being able to make those repayments more easily.
A guarantor loan will allow you to borrow a significant amount of money. Not only is it repaid in instalments but you will allocate a guarantor, who has a good credit record, that will make any repayments that you miss. This reduction of risk means that the lenders will be happier to allow you to borrow more money even if you have a really poor credit record.
As you can see there are big differences between the loans.
If you want to think about which might be the best for you, you will need to
think about what you are looking for. Ask yourself a series of questions –
- How much money do I need to borrow? –
this is something which you should always ask yourself. Make sure that you are
finding out how much you need rather than how much you want. It is often
tempting to borrow a bit more money than you need. You might think that it will
be there just in case you need it or that you will be able to treat yourself to
something a bit extra with the money. However, this is not a very sensible idea
as you will end up paying more as a result of borrowing more, so make sure that
you get the figure right.
- How much can I afford to repay? – it is a
good idea to work out how much you can afford to repay. Take a look at past
bank statements and work out what you would normally have left and whether that
would be enough to make this payment. It might be that you can cut back on your
spending as well, in order to make sure that you have enough for the repayment,
but you will need to check.
- Do I need instalment repayments? – As
part of looking at how much you can afford to repay, you will be able to see
whether you might be better off with a loan that you repay in smaller
instalments or one where you can afford one lump sum payment.
- Do I know a suitable guarantor? – if you
are thinking about getting a guarantor loan then you will need to make sure
that you are confident of finding a guarantor. You will need to find a friend
or family member that will be willing to help you out if you miss loan
repayments. They will also need to have a good credit record.
Once you are clear on these things it should help you to
automatically be pointed towards the right loan for you. You will need to make
sure that you are calculating correctly and that you really are picking the
best loan. It might be tempting to pick a loan type that you are more familiar
with, for example, but it is wise to try the one that will suit you the best as
that is most likely to suit you financially and you will be more likely to be
able to easily manage the repayments.