How to Choose the Right Short-Term Loans

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 best.

Payday loan

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.

Instalment loan

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.

Guarantor loan

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.

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