Even when you know a period of financial hardship is only temporary, it can still be an extremely stressful thing to go through.
Whether it’s the end of the expensive holiday season, or a sudden emergency has absorbed your funds too quickly, you may be looking around for a cash injection to help tide you over until payday.
Of course, in this situation many people turn to short term loans for help, then pay them back in small increments when their cashflow problems have resolved. But you may also be thinking about the possible alternatives to short term loans that you could consider.
When in need of money quickly, some of the most popular options are usually turning to credit cards or borrowing from a trusted friend or family member.
Borrowing from Friends and Family
Our loved ones are always there to help us out when times get hard. And those that have the money readily available may be more than happy to help you out. Arguably the easiest place to find financial help, friends and family know you as a person; they’ll be looking at you, not your credit history.
Another perk of borrowing from a friend or family member is that they don’t usually charge interest on the money you borrow, and even if they do, it will likely be much less than your bank’s interest rate.
If you’re a little late making your repayment, they are also normally more understanding than a bank or a standard loan provider, meaning there may not be negative repercussions either.
But, there are those who stress that you should never loan money to a loved one. If you have ever been the lender in this situation, or spoken to someone else who has, you’ll know how toxic money can be to a relationship.
Making a repayment late without an excuse, or an excuse that is deemed ‘not good enough’ by your lender, can create mistrust between the two of you.
Whilst unlike a traditional loan, you probably won’t end up in court or have the bailiffs come knocking, this strain can take its toll and can have an impact on your relationships that may never go away.
Borrowing emergency money from someone you know and love may seem like the answer to your problems. It may carry much lower risks than lending from a financial service provider but it is much more likely to cause more heartache if things go wrong.
If you do decide to go ahead with loaning from a friend or family member, make sure you set out an agreement in writing early on, covering:
- How much you will loan
- When you will repay it by
- Your repayment plan
- What will happen if you pay late or cannot repay all of the money
Using a credit card
There seems to be a credit card out there for everyone nowadays. Whether you have good credit, bad credit, or no credit at all, you’re bound to be accepted by someone.
Some of these companies even advertise specifically to those with bad credit, stating that using their card and paying off the bill each month will even help them build up their credit score.
Many credit card companies draw people in with 0% bank transfer offers, cashback when you shop, and no annual fee.
It is a highly saturated market, with attractive new deals popping up all the time. A multibillion pound industry, the FCA found that around 60% of UK adults hold at least once credit card.
However, their research also revealed that there is currently £61 billion in outstanding credit card balances in the UK alone, with an average debt of £2,000 per person.
Whilst you may have the option of making just the minimum payment on your bill each month, this could actually make things worse. The minimum payment will be 1% of your balance plus interest, of £5 depending on which is higher.
So, if you spent just £1,000 on a credit card with an APR of 69.9%, it would take you more than 23 years to completely pay it off; racking up as much as £4,209 in interest in the process.
The Guardian recently reported that consumers are becoming trapped in credit card debt for much longer than initially thought, with 89% of those in debt having been that way for two or more years.
Credit cards can be extremely helpful in relieving a financial burden but high interest rates and hidden charges can easily build up. If you do choose to use one, make sure you pay back as much as you can each month and never spend more than you can afford to pay back.
Short term loans
Whilst these alternatives carry their own benefits, short term loans provide the peace of mind of dealing with an Financial Conduct Authority-compliant lender with an agreed repayment plan of between 3 and 24 months.
If you’re looking for a quick solution to a temporary financial struggle, short term loans can be a simple and effective way to help get you through. Many short-term loans can work out eight times cheaper than standard bank overdrafts, as Which? reported in 2016.