If you need money to tide you over a financial hurdle, a short term loan could give you the flexible borrowing you need. But which kind of loan should you choose?
No matter how carefully you budget, unexpected bills have a habit of hitting you at exactly the wrong time.
Car repairs, problems with plumbing, holes in the roof, medical or dental emergencies – these things can easily happen when money is short.
Most people ride through these bumpy financial patches with the help of short term loans.
But with so many different kinds of short term loan available, it’s important to match the right kind of lender to your circumstances if you want the best deals.
To help you, we take a quick look at the main types of short term loan on offer.
Short term loans from friends and family
If you need a small loan quickly, it’s often a good idea to ask friends and family to help out – especially if you’ve helped them out with money in the past. Many of them could be willing to help you out with an interest-free short term loan to tide you over.
But be careful. It can not only be embarrassing to ask people you’re close to for money, but it can place strains on your relationships with them – especially if a friend or relative lends you cash they can’t really afford to spare. And if you find you can’t repay them, your relationships can break down for good.
Short term loans from an online pawnbroker
If you have valuable items you can borrow against, an online pawnbroker service could be for you. It’s a particularly good option if you have a bad credit rating – because your loan is secured against your belongings, pawnbrokers don’t need to delve into your credit history.
Online pawnbrokers will loan against watches, jewellery, art, antiques, cars and other valuables such as gold, loose diamonds and even yachts and fine wine collections!
There are major advantages to using an online pawnbroker instead of a high street pawnbroker service – particularly as it’s quick, easy and doesn’t involve the hassle or embarrassment of getting your belongings valued in a public shop.
When you use an online pawnbroker like borro, all you have to do is apply online or call a freephone number to describe your items. Then you courier your items using a free and insured service, so a valuation team can decide how much your items are worth.
If you are happy with the offer the online pawnbroker makes you, then you accept the contract online and you could receive your money the same day.
Best of all, when you pay back your short term loan you receive your valuables back too – so if you’re confident you can repay the money, it’s a low risk way of raising funds.
Secured short term loans
If you own your home outright or are paying a mortgage on it, you can opt for a secured loan – sometimes called a ‘homeowner loan’.
The amount you can borrow depends on a variety of factors, including the amount of equity in your home – but they’ll typically be in excess of £3,000.
Most lenders offer Loan To Value loans – that means you’ll be able to borrow only up to a defined percentage of your home’s value, including your present mortgage balance.
The interest you pay on your secured short term loan is likely to be based on your credit history, employment status and whether you have defaulted on any credit payments in the past – so the lower risk you appear to be, the better the interest rate you can secure.
However, there’s one major drawback to the secured short term loan – you can lose your home. If you’re not confident you can keep up with repayments, steer clear. Because if you default on a loan like this, your house could easily be repossessed.
Short term payday loans
Payday loans are an increasingly popular way to tide people over short term financial problems.
They’re fast, they’re easy to arrange and they’re open to anyone aged over 18 who has a regular salary and a UK bank account.
The amount you can borrow depends on the lender you choose, but the Payday Bank is a good example of an online payday lender – it offers you loans of between £80 and £750, depending on your circumstances.
All you have to do is fill in a simple online form and your short term loan can be approved in minutes – the money could be in your bank account within 24 hours.
Then, on your payday, your account will be debited by the amount you borrowed plus interest. At Payday Bank’s current interest rate, you’ll pay £75 interest on a £300 loan over 28 days.
Whether you choose a payday loan, an online pawnbroker or another form of short term borrowing, do remember that short term loans are never a long term solution to financial problems. While they can help tide you over an unexpected financial hurdle, if you’re slipping into debt it could be time to seek help.