A small, short-term personal loan may be a popular financial product for most people. They can be handy for helping with larger purchases, such as buying a new car or making improvements around the home, and can be a god-send if you’ve found yourself in an emergency financial situation, such as having your car break down just before payday or needing to replace a broken home appliance.
What are Short-Term Personal Loans?
A short-term personal loan is usually when a lender agrees to lend a small amount of money that you agree to pay over a short period of time. Generally speaking, they are available to borrow from less than a hundred pounds to a few thousand and can be repaid in full in one months’ time or over a period of a few months to a year. As the amounts are generally small, you do not have to be a homeowner to borrow since the loans tend to be unsecured.
Pro: Great for Consolidating Small Debts
If you’re hoping to clear off small debts like low balance credit or store cards, a short term loan can be an ideal option for consolidating this debt as they generally offer more favourable interest rates and you will only have one monthly payment to make, allowing you to clear off a few small debts at once.
Pro: Improve Your Credit Rating
Repaying the debt on a small personal loan can boost your credit rating as it proves to lenders that you are a responsible borrower when you make the repayments in full and on time. And, since you can often repay the entire loan in one payment, it’s a good way to give your credit score a quick boost.
Pro: Cover Emergency Costs Quickly
Many short-term loan providers such as BingoLoans have very quick application processes, allowing you to have the money in your account on the same day so you can quickly get the cash you need to cover any emergency expenses straight away.
Cons: They Can Have High Interest Rates
Short-term loans often have quite high interest rates, so you can expect to be repaying often significantly more than the original amount that you borrowed. The total repayment amount will be higher when you borrow over a longer period of time, so it’s worth making overpayments where possible to reduce the total amount you need to repay.
Con: They Can Be Too Easy to Obtain
You really need to be aware of how much you are borrowing since it’s easy to borrow too much and struggle with repayments. This is because small, short-term loans are often very easy to obtain and you might not have as much time to think about everything as you would if borrowing a larger amount of money.
Con: They Have Large Penalty Fees
Lastly, if you’re taking out a short-term loan, it’s imperative that you ensure you will be able to make the repayments on time. Short-term loans often have large penalty fees for missing payments or repaying late, so it’s important to understand the terms of your repayment before you sign the contract.
Short-term loans can be extremely useful, but keep these pros and cons in mind when you apply.