Short term credit is available if you want to borrow £80 to £2,000 over a period of two to twelve months. But what are the short term loans alternatives?
Do you need access to cash but want a look at what’s out there in the market before you decide whether a short term credit facility is for you?
CashLady’s team have done all the research you might need and present our rundown of the alternative to short term loans.
There’s a credit card for just about everyone these days, whether you are financially secure or struggling to make ends meet.
Plenty of credit card companies will attract you with a 0% balance transfer offer which might save you paying interest on other credit cards you’ve been using. Others offer cashback on purchases you make in shops and online.
The credit card market is very competitive and there is no sign of that changing any time soon. It is a multi billion pound industry and around 60% of adults carry at least one credit card according to the FCA
For borrowers with less than perfect credit histories, other credit card options do exist. You may have seen the adverts on TV.
They are often the ones that say that having their card and paying your bill every month will go a long way to repairing a bad credit rating.
Most credit cards have no annual fee. If you have one and you always pay your balance in full, you might not even pay any money for having your card.
Are there any downsides?
Not everyone accepts flexible friends so if you need to buy something in an emergency, all you have is your credit card, and the person you’re buying from doesn’t accept credit cards, there is only one option – using the credit card to draw money out from the cash machine.
You will often pay sky-high fees on cash withdrawals made on credit cards so you’ve got to be careful.
Every month, your credit card company will collect a payment from you. That could be a problem if all you make is the minimum payment.
If you spend £1,000 on your card and the APR is 69.9%, your £1,000 debt will take 23 years and 2 months to pay off and cost you £4,209 in interest if all you make is the minimum payment. (Minimum payment is 1% of the balance plus interest or £5, whichever is the greater).
Used responsibly, credit cards can really help you out. But be careful that you don’t borrow sums of money that take decades to pay off.
If you’re looking for a small amount of money to tide you over, for example, £200, banks and building societies will probably not help you. The reason is that the amount is too small for them to process. That’s where short term loans come into their own.
But what if you want a larger amount of money, say £10,000? What are the advantages and disadvantages of bank or building society loans?
They will usually offer much lower interest rates. The larger the sum of money borrowed, the more benefits you enjoy from lower rates of interest.
Repayment levels are normally fixed at the same amount of money every month. You can usually borrow over many years – up to 7 years for unsecured loans (where your home is not at risk) – meaning low monthly payments.
But if you come into money and you want to pay the loan off early, many banks and building societies will penalise you, charging in some cases up to 6 months’ interest to let you out.
Banks and building societies are very risk averse too. Remember the credit crunch? For many banks, that’s still a reality.
Borrowing money from them is harder than ever and if your credit rating isn’t near perfect, they won’t even consider you.
Overdrafts are products that bank and building societies offer on their current accounts (the account your pay goes into and your household bills come out of). Compared to bank loans, they’re generally a lot easier to get accepted on.
Your bank might give you a £500 overdraft limit. That means that you can spend up to £500 more than you have in your bank account and you don’t need to ask your bank for permission.
They’re very handy but lots of people don’t like them because it almost encourages them to spend more than they earn. If you do it for long enough, you might find that when your pay goes into your bank account, all it does is pay off all of part of your overdraft.
If that’s the case, you’ll be paying a lot of money every month to your bank for staying in overdraft. It’s difficult to move forward.
Another big danger lies if you spend past your overdraft limit. That’s what the banks and building societies call an unauthorised overdraft. The charges can really mount up.
If you borrow £100 for a month on a short term loan, the most interest you’ll pay is £24. If you spend a month in unauthorised overdraft with your bank, you’ll pay a lot more.
One last word of caution – unlike bank loans which have a defined end date, overdrafts can be withdrawn immediately without notice. If a person is living in their overdraft and that happens, the effects on their finances can be awful.
Borrowing from family and friends
More often than not, friends and family are happy to help you out of a temporary sticky financial situation if they have the money available.
As an added benefit, family and friends don’t (normally) charge interest and if your repayment schedule slips by a few days, it’s normally fine.
Beware though that if you borrow money from friends and family and don’t pay them back at the right time without giving an explanation they believe or accept, it could be toxic to your relationship.
Until that money is paid back, the strain on the relationship you have with your family member or friend could be huge. It might be something that never recovers because the person who lent you money has lost faith in you.
Family and friends are arguably the easiest places to get help from. If you don’t pay them back, they won’t take you to court or call in the bailiffs, generally.
But damaging a cherished and important relationship with someone you love and respect is going to cause you and that person a lot of pain and upset.
If your credit rating isn’t the greatest and you’ve found it impossible to get yourself a loan, finding a friend or a family member with a good credit rating means that it’s possible you could access a guarantor loan.
If you nominate a guarantor whose credit history also isn’t great, the chances are that your application for a guarantor loan will not be successful.
Taking out a guarantor loan and successfully keeping up payments on it can transform your credit rating for the better meaning that, in the future, you might be able to borrow directly rather than rely on your guarantor.
You can find out more about guarantor loans with CashLady’s guarantor loan guide.
Revolving credit is a cross between an overdraft and a credit card.
Just like with an overdraft, you have an overdraft limit. You can spend up to that overdraft limit on anything you want.
And just like a credit card, you make a monthly repayment. The difference with a revolving credit facility is that you pay back all of the interest and part of the money owed.
If you have an overdraft with your bank and you find you’re getting hit with big monthly charges for authorised and unauthorised usage, you could save a lot of money by diverting some of the money you spend away from your bank and onto your revolving credit provider.
You can read more about log book loans.
Short term loans alternatives
Thanks for reading CashLady’s guide to short alternatives.
If, after considering all the options, you’d like to apply with us – visit CashLady for payday loans.