Regardless of the time of year, whether it be summer or Christmas, very few people are immune to finding themselves faced with an unexpected expense which could throw a meticulous monthly budget into disarray. If you find yourself short of cash in the run up to pay day, short term finance can help see you through.
But what options are available in the UK? Which is cheapest and how are you supposed to know which is most suitable for your needs? Read on to find the answers to all these questions and more.
If you just need a little extra cash to get you through the month, a credit card may be a good option for you. Credit cards offer quick access to cash in emergency situations and provide a way for you to improve your credit score. If you haven’t already got a credit card, the application process is often straightforward and doesn’t tend to take too long to complete. Whether or not you’ll be approved, however, is all dependent on how your credit score currently looks.
There are several cards available for those with low credit, however the APR tends to be slightly higher on these. A low APR credit card is the better option if you’re able to get one, however a high APR card is a good place to start if you have a poor credit score and are looking to improve it while making small purchases each month.
Another benefit of using a credit card is that according to the Consumer Credit Act, any purchases made between £100 and £30,000 are protected. This means that should anything go wrong; the retailer should refund the money to you. This is a great option if you’re planning on spending a significant amount, for example on booking a holiday or a wedding venue.
One of the most common forms of short term credit is an overdraft. Whether it’s planned or unplanned, this is one of the quickest ways to access short term finance to get you by. Simply use a debit card to make a purchase as usual, and let your account go over your available balance. If you already have a planned overdraft on your account or you want to access an unplanned overdraft, you usually won’t need to complete any forms or speak to a member of staff at the bank.
Of course, not everyone will have access to an unplanned overdraft so it’s worth checking with your bank before making a purchase.
If you do intend to use an overdraft as a means of short term finance, it is best to try and gain access to a planned overdraft as opposed to the unplanned alternative as there is quite a significant difference in fees. Previous reports have suggested that an unplanned overdraft can cost more than a payday loan due to the daily fees and interest charges.
If you have a poor credit score, consider applying for a small overdraft to begin with and then increasing at a later stage if your score improves. This will allow you to access a small amount of short term credit each month without facing hefty unplanned overdraft fees.
Short term loans
One final means of short term finance comes in the form of loans. If you just need a small amount to cover an emergency expense, you may want to consider a short term loan to get you by. When payday loans first entered the market, lenders would provide funds on the understanding that the loan would be repaid in full with added interest on the borrower’s next pay date. Now, most lenders provide the option to repay the funds over a number of months, making the loan more affordable and easier to manage.
While the interest rates on this form of loan are quite high, you may be able to repay it early and save on interest.
When applying for a short term loan, a responsible provider, such as Mr Lender, will take into account your credit score and ability to repay the funds to ensure you won’t enter into financial difficulty. If your credit score is fairly low, you may have trouble being approved for a short term loan, though many lenders may still consider you based on your previous credit history.
Long term loans
While short term finance may seem like the most suitable option for you, you may want to look into long term loans depending on your reason for borrowing. An overdraft or short term loan, for example, may help cover the cost of an unexpected bill or emergency expense (such as car repairs or replacing a household appliance). However, if you need the additional cash to help pay for a larger item, such as a car, a long term loan is the better option.
This is because you will be able to borrow a larger amount and repay over a longer period. Before committing to any of the options outlined in this post, decide whether short term finance will be enough to cover the cost of your expense, or if a long term loan is more appropriate.
As with all forms of finance, it is important to consider whether borrowing additional funds will lead to financial difficulty. If you believe that you are struggling financially, consider turning to one of a number of charities and organisations on hand, such as StepChange, to help manage your finances and debt.