On paper, at least, you could use a short-term loan to pay for almost anything (provided that it’s legal, of course). But theoretically being able to use borrowed money to pay for a certain thing doesn’t necessarily mean it would be the right course of action for you.
So, in this blog post, we thought we would take a look at some of the circumstances in which taking out short-term personal loans can make a degree of sense… and some other things that it might be better for you to fund in another way.
Firstly, what are some things that a short-term loan could be well-suited for?
Broadly speaking, if you find yourself in an unexpected situation in which you have to make a payment straight away, this is the kind of circumstance in which applying for a short-term loan could make some sense.
Let’s imagine, for example, that you’re about to head out to work on a morning, and your car won’t start… you call the breakdown assistance people, and it turns out to be a problem that will cost you a few hundred pounds to fix. You’re about a week away from payday, and your bank account presently contains… well, dust.
This is the kind of situation in which taking out a short-term loan might be a course of action worth thinking about. It might not be your only option – you could, for instance, ask family and friends for help to pay for your car repair, or request an extension to your bank overdraft. Nonetheless, it is a “classic” example of the types of situations that short-term personal loans were designed for.
Sometimes, though, it isn’t obvious whether borrowing money is the right choice.
So, in what circumstances might it not be such a good idea to apply for a short-term loan? As a general rule, the more “optional” or “inessential” a particular expense is, the less suitable it will probably be as something to fund with a short-term loan.
If, then, you find yourself lusting after an expensive watch in the jeweller’s window, or a fancy gown, or you’ve just had a stressful week and yearn to go on a shopping spree… these are the kinds of things that personal loans don’t tend to be so well suited-for.
Remember that we aren’t just talking from a lender’s point of view here… we’re also talking about what would be in your best interests. Every penny of any loan that you take out will have to be paid back, plus interest. And the interest rates for short-term personal loans can be especially punishing; APR at 1,500% or more is not unheard-of with this type of borrowing.
Warning: Late repayment can cause you serious money problems. For help, go to moneyadviceservice.org.uk.
Representative Example: Borrow £500 over 6 months at an annual interest rate of 98%. The total amount repayable is £750 with an interest amount of £250. Representative 1286% APR.
If you're uncertain about the suitability of a loan for your circumstances, consider seeking independent financial advice.
We can help bring you the solution that works for your particular situation
With our words above, we are not trying to suggest that you should never, ever, use a loan to pay for any kind of “luxury” item that you don’t need to have right now. The reality is that much will depend on your ability to make the repayments on whatever money you do borrow.
Our overriding message here is simply that loans should be reserved for a very small number of select circumstances, if they are ever needed at all.
One potential route for funding relative “luxury” purchases, for example – such as a holiday, or even a wedding – could be saving up as much as you can in advance of the purchase. This will hopefully leave you with only a small amount of money that you then consider borrowing through a lender, such as those we represent here at CashCompare.
Again, the wisest course of action will hinge greatly on your particular situation – the key thing is to be financially sensible, whatever that situation is.
Speaking of CashCompare, it is worth remembering that we have a no-obligation quote request form right here on our website, which you can use to get a sense of what your loan options could be, without the need to commit to anything. This could factor into your decision-making in relation to personal loans, so that you only take out a loan if it really is the most suitable thing for you to do.
Ready to explore your loan options? Use our no-obligation quote request form to see what’s available, tailored to your needs.
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"Warning: Late repayment can cause you serious money problems. Always consider if borrowing is the right option for you and ensure you can repay your loan." For help, go to moneyhelper.org.uk.