Many people in the UK will at some point in time turn to a short term loan in one way or another. Whether in the form of payday loans online or perhaps other types of short term funding. They tend to be a very convenient way of accessing cash. This is as the application processes will usually be swift and easy to do,. With many lenders also helping to provide the much needed finance to those with a bad credit score and history, you can see why. We look at how to use a short term loan wisely.
How to use a short term loan wisely. Exert Caution
However, this does not mean you should not exert some caution. This is because these kinds of loans typically have high interest rates as they are unsecured. They are also provided on the basis that they are needed to help in a financial emergency. Not specifically and exclusively just for luxuries.
How then should one use a short term loan in the correct manner? We explore the ways in which you should use a short term loan wisely, whilst exercising caution to avoid spiralling into debt.
Avoid getting into a debt trap
You should thoroughly assess your finances and how much you will need in reality. What is necessary when it comes to getting any kind of short term loan. Many people fall into the trap of taking out a payday loan, only to realise after that they have not considered payments. They also need to not pay off the original amount, but the interest too. They then find themselves in a similar situation to the one they were in prior to getting a loan.
This tempts people into taking out another short term loan to cover outstanding expenses,. And for some, this can turn into a cycle of debt. This is why you should always avoid getting out loan after loan and should manage your expenses effectively.
Think Carefully About the Amount you Borrow
As a rule of thumb, only get a short term loan to cover the amount you specifically and urgently need to get by for that precise moment in time. On average in the UK, the amount requested for a payday loan in recent times was around £260, with nearly all loans totalling less than £1000 in total.
Whilst the temptation exists for borrowers to take out more money than you actually need so that you can fix a number financial problems at once, it could end up being more trouble than it is actually worth. You should therefore always remember that the higher the short term loan amount that you borrow, the interest rate will also be higher too.
How to use a short term loan wisely. Stick to the essentials
Over 53% of people who take out a payday loan use the funding to help pay for living expenses, which is in most cases, the wise thing to do. Only 7% used it for buying new clothes, something that most lenders will advise you steer clear of, with clothing not being essential in the same way as say a boiler repair or emergency bill is.
Conclusion
Short term loans are in no way free cash with no consequences and really should only be used to pay for essential items, as you will only end up incurring extra interest whilst saving to pay that back. Use the loan to help with things such as broken facilities in the home, food and electricity or for transport reasons.
