There are several different types of short-term loans but the ones that are the most well-known ate payday loans. This might make a lot of people think that they will be the very best type. However, this may not be the case. The problem with loans is that we all have different requirements at different times with regards to our borrowing. This means that we cannot say for sure whether payday loans are the best. However, if we think about what the advantages and disadvantages are, then we will be able to make a decision about which loan might be best in certain circumstances.
Advantages of payday loans
- No credit check – with all short-term loans you have no credit check and a payday loan is included in this. This is because these loans came about because it was noticed that there were people that were not able to borrow money as they had a poor credit score. Therefore, it was thought that bringing out a loan which was not dependant on credit score would be really useful. This was therefore how payday loans came about. Although a credit check is officially done it is just a soft credit check which does not leave an entry on your credit report. Your credit status is not looked at either as the lenders will lend regardless of this. There is no difference here between short term loans and payday loans.
- Quick to arrange – payday loans are normally really quick to arrange. Another reason that they came about was because it was noticed that money was needed for emergencies. Therefore, they can take a few days or in some cases a few hours to arrange. This will enable people to get the money that they need quickly. Obviously, if it is really urgent, then people need to make sure that they choose a lender that will offer this fast turnaround. Some other types of short-term loans, such as guarantor loans, may take a bit longer to organise as the details of two people have to be checked before it can be set up and one will need a credit check.
- Simple to arrange– payday loans are very simple as there are lots of lenders and they want to make sure that it is easy for you to apply. They want to make it quick and easy so that you are not put off and choose a different lender. They will only ask you what is necessary and they are likely to offer the option of applying online or over the telephone which means that you will not need to fill out paper forms. This can be a big relief to a lot of people. These are likely to be options for all short-term loans.
Disadvantages of payday loans
- Have to repay in lump sum – with a payday loan it is necessary to repay everything that you have borrowed and the interest all in one lump sum. This can be problematic for some people if they borrow a lot of money and the find that when it comes to repaying, they just do not have enough to repay. It can also be difficult for some people who do repay, to then manage the bills that they have to pay for the rest of the month. This is where a loan that can be repaid in instalments can be more useful and an instalment loan could be better. This is very similar to a payday loan apart from the fact that it is repaid in instalments instead of a lump sum.
- Can only borrow small amounts– a payday loan will usually offer borrowers a few hundred pounds or maybe up to a thousand pounds. This means that the amount you can borrow is relatively small. If you have not taken out a payday loan before, it may be the case that you will only be able to get a few hundred pounds because the lender might want to make sure that you will be able to repay that before they are prepared to take the risk of lending you more money. If you do want significantly more money then you might like to consider a guarantor loan. This loan will allow you to borrow up to £10,000 as long as you find a guarantor who will be prepared to cover any repayments that you miss.
So, you can see that although a payday loan might be the most well-known of short-term loans, you will find that it is not always the most suitable. It is good to be aware of all of your options and have a good understanding of them and then you will be able to decide which of the loan types will be the most suitable for your situation.