Is a short term loan really right for you

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If you are considering borrowing some money to cover the cost of a small expense you may like to consider a short term loan.

A short term loan is a loan which, as the name suggests, allows consumers the ability to borrow for a short period of time for generally speaking ‘small’ sums of money. Where a short term loan is different from a more classic form of borrowing is in respect to the period of repayment. These particular loans are not designed to be repaid over years; like a bank loan for example, and instead are often repaid in a period of a few months. When making the decision as to whether a short term loan is the right choice it really does depend on the reason for borrowing. A small term loan is classed financial as ‘high cost’ credit which means that in total, the amount of interest repaid over the course of the agreement is going to be more than that of a more traditional and longer term bank loan. This is because when taking a bank loan it is likely the sums of money being considered are really rather sizable and could easily be sums up into the high thousands. In the case of short term borrowing however typically the loan amount borrowed is in the region of £300.00 and therefore the total amount payable is reflective of the amount and repayment period offered.

With all of the above in mind the main consideration for whether a short term loan is really right for you is the specific reason for borrowing and this means ensuring the loan fits the bill. Take for example an instance where you are facing an unexpected but urgent dental bill. This is the sort of cost which may arise at some point but is unlikely to have been planned for due to its infrequency. Dental bills can cost anything from £20.00 up to thousands depending on the work required but for the sake of this example and in respect to whether a short term loan would be suitable lets look at covering the cost of a tooth removal. Of course depending on whether the dental work is completed via the NHS or privately will alter the price but it would be sensible to expect the cost to be in the region of £200.00. Taking a consumer who is paid in 2 weeks but requires the work to be completed now to avoid further problems, it would be understandable that perhaps the immediate funds are not readily available. In this specific example it may be sensible for the consumer to consider a short term loan because £200.00 is an amount offered by such lenders. Given that all being well the dental work required will be a ‘one’off’ cost, the consumer could budget to make repayments towards the short term loan over an agreed number of months, without fear on needing to increase borrowing. Many lenders allow repayments over a good selection of months, meaning the repayment can be tailored to our consumers individual budget.

Warning: Late repayment can cause you serious money problems. For help, go to moneyadviceservice.org.uk

Representative Example: Representative 1286.98% APR on a loan of £300.00 with 5 monthly repayments of £101.03 Total amount repayable £505.13 Annual interest rate (fixed) 290% Maximum APR 1351%

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Author: Internal Marketing Department