Loans Most Needed Because Of Short Term Thinking

January is probably the least favourite month for most people financially.  It is also one of the best for short term loans companies because so many people need more cash to get them through the month.Pound notes

As logbook loans companies find, they have a rush of people looking for loans in December because they want to pay for Christmas, and then another rush in January as people look to pay for excesses over the holiday period.

This is why the industry continues to thrive, because there are so many consumers who haven’t been educated on how to budget, or find it difficult not to spend money at times when they should be saving.

Central government help

The UK government is familiar with this and the Money Advice Service has been set up to help people budget.  Those that want to improve their finances can use the online budgeting tool that lets them work out how much they spend against the money they have coming in each month.

The government must know that logbook loans and other lenders thrive because they rely on the general lack of education amongst the UK public when it comes to finance.  Most people weren’t taught about how to manage their finances at school and this is showing with the need to set up financial charities that offer debt help and advice.

Holiday loans

It is predictable that the spiral of loans will continue, with lenders looking forward to July when people will be taking out more money to go on holiday.  As usual the worries will come when they get back from their travels and realise they need to pay their loans back.  No wonder there are so many repossessions of cars and homes because people can’t afford to pay back their debts.

The Financial Conduct Authority (FCA)will probably put an end to companies being able to advertise loans around Christmas and holiday times.  It gives consumers an incentive to take out a loan to pay for something short term.  It is often hard enough for people on low budgets to see holiday adverts, let alone being exposed to more adverts encouraging them to pay for their holiday with a loan.

Ling term thinking is best

Short termism needs to be discouraged when it comes to financial issues.  When people become used to taking out loans on a short term basis they find it easy to take out loan after loan as a quick fix.  This can leave them in difficulty in the future, because the debt adds up.  A loan that started off small has turned into a mountain of debt that can’t be paid off.  Even the loan companies don’t benefit because if the borrower can never pay back the debt, the company can lose much of it’s initial investment.

Comparing Short Term Loans Against Each Other

Shopping for short term loans should mean comparing various offers against one another.  Not all APR’s are the same and not all loan terms are the same.  Companies can often highlight their best deals on their websites, whilst not showing the full picture.Comparing different things

This can be infuriating for consumers having to navigate all the different options available to them, and lets face it there are plenty of lenders to choose from.

One of the best ways to sift through all the noise online is to use a comparison site.  We have been looking around and there a few good ones and some less than good.  Choose a site that compares loans over the same period.  This site that compares logbook loans www.logbookloanadvice.org.uk looks at V5 loans over the course of a year, comparing their various fixed interest rates.

If you don’t find a site that is as useful as this for the particular short term loan you are looking for then you can use a calculator like this one.  Find all the details from the lender, if they aren’t clear on their website ask them to provide the exact annual fixed interest rates so you can do your calculations.

It is best to be sure about a loan you are taking out, rather than having no idea what you are getting yourself into.  Sometimes APR rates and loan terms can make a loan seem quite attractive, however when you change the term of the loan, everything changes and you might find yourself having to pay back more than you originally thought.

UK law

Laws have come into effect in the UK stating that lenders should be open and honest about the rates they charge customers.  This means they have to show actual rates on their website in a clear and prominent position, next to where the “apply” button is.

The point of this is that it can distract someone who just goes ahead and applies for a loan without thinking too much about it.  Anyone who has found themselves this far reading a blog post like this is obviously conducting a good amount of research and so will probably not benefit directly from these enforced changes.

Doing any research is better than nothing when it comes to shopping for a loan.  There is no right or wrong loan to take out, however there are loans that will save you money in the long or even short term if you choose to use them.

 

 

How Short Term Loans Serve a Purpose

Taking out a loan that has high interest rates isn’t always for the faint hearted, it costs a lot more than other loans and if you can’t pay it back you know you are stuck with a high cost loan to pay back.Chart going down

You need to be really sure that you can comfortably afford the loan as it will impact you significantly financially if you can’t.

Some lenders are open about their rates.  On the Varooma website where they offer logbook loans they clearly state their rates in a very prominent place when you go to apply for a loan.  The same is true for some other lenders, whereas some are not so open.

Websites where you can compare the prices of various loan providers interest rates can be a sure fire way to find the cheapest rates, however be careful to make sure that all the costs are covered.  For example, is there a cost to set up the loan?  This can be fairly common and surprise people when they go through the application process.

Money is always needed

In various situations throughout their lives people need money to get them out of a difficult situation.  Whether that is a household bill they need to pay, or just some unexpected other cost that has cropped up.

For those on low incomes they can find it hard to save money to cover these costs so a loan can be their only way out of a problematic situation.  If they are sensible about these loans, they shouldn’t cause them problems at all, it is only when they take out too many loans and don’t worry about paying them back that debt becomes an issue.

A logbook loan or payday loan isn’t inherently a bad thing, it is the choices of the people who use them that causes them to suffer.  The only issue with some of these loans is that people who have bad credit records use them.  These people often have a bad history of managing money, which means they are less likely to pay loans back on time.

Most lenders have FAQ’s on their website which give people thinking about loans the chance to understand what they are dealing with before they take out a loan and don’t get themselves into too much trouble.

Better economy

The economy is better fuelled if people have money to spend, if loans are available then money is being circulated into the economy.  This means that loan companies will prosper and people who’s goods and services are being bought will also benefit significantly.

It is often in times of recession that loans become more popular because people are feeling the squeeze of hard times.  This in turn helps to some extent to push the economy back to a better place when it is combined with other strategies.

Why are short term loans expensive?

Short term loans need to be expensive due to their very nature, they are short term.  Lenders allow people to borrow cash over short periods and they need to make a profit from these loans. Expensive finance

If someone takes a low interest rate loan out over 2 months, there is little profit in it for the lender.  Where lower interest rates are profitable for lenders is when they are taken out over longer periods.

Couldn’t they charge lower rates?

You might think, why do lenders not charge lower interest rates for short term loans and undercut the rest of the market?  This would not make business sense because they might even make a loss on the loan, it costs them to be able to lend the money and there would be no profit in it.

Unfortunately in most cases if you are looking at borrowing short term you will end up paying high interest rates, this has always traditionally been the case.  Even before short term loans were less easily accessible on the internet, bridging loans were fairly common.  These had high interest rates too, but they had specific purposes, to bridge a gap in finances, for example when buying a house.

Research carefully

If a short term lender is offering a loan that has much lower interest rates than other providers it might be best to be a bit suspicious.  If it is a well known household brand then maybe not in some cases, but if you have never heard of them, take precautions.  There may be hidden charges such as admin fees, which is why they are marketing such a low interest rate, and then they will recover other costs through administrative charges.

What are the fees?

Always ask lenders if there are other fees before you choose their loan, and read the paperwork thoroughly.  Even if they are a well known brand do not assume that they are upfront about everything.

It is best to be cautious when applying for any type of finance because it can have an impact on your life if things don’t work out as you would have expected.  You need to make sure you can afford the loan, so not paying it back won’t affect your credit rating or so you don’t lose an asset you put up for security.

This video looks at people using expensive loans and why they do it.

Short Term Cash for Long Term Problems

The problem that many people have when it comes to borrowing money over the short term is that they only think short term.  They think how useful it will be to have some quick cash to sort out some bills or pay for something specific right now.Pile of money

They don’t think what will happen in the future if they can’t pay back that loan and they have nothing to show for the money.

Usually when you borrow money you are borrowing to buy an asset, for example a car.  If something should go wrong and you can’t afford the monthly payments, you don’t have that asset to sell to pay back the original loan.  Because short term loans have high interest rates it is easy to get into trouble very quickly.  The debt rises to more than the loan cost in the first place.

Long term planning

A loan needs to be planned and thought out if it is to be of any use for a borrower, if not it will not work out well.  Lets say for example that the loan is used for a wedding, whilst it is very useful, at the end of it there is nothing to show for it, apart from perhaps nice memories.  If a high interest rate loan was used, the wedding ends up being far more expensive than it should have been.

Loans need to be scrutinised by both the person who is taking out the loan and the lender.  If the lender does not properly check how affordable it is to the borrower this can start a sequence of inability to be able to pay the loan back, together with lots of debt.

If the borrower doesn’t think long term about how they are going to be able to make the payments, they too will find themselves in difficulty in the future because they didn’t properly assess whether they could afford it or not.

Loans are tempting

The temptation for quick cash is always there for borrowers because people always need extra money.  This is not to say it is always the wrong thing to do.  Short term loans do definitely have their uses and will probably always be around.

Money management

If people were to manage their money in a more organised way they may not need to take out a loan at all because they would plan their finances according to their needs.  If they wanted to buy something they would save for it first and plan how they could afford it, rather than doing it the other way round.  Too many people buy something or take out a loan and plan how they are going to afford it afterwards.  This rarely works and is why so many people find themselves with large amounts of debt.

Why Credit Cards Are Useful For Short Term Loans

One of the biggest problems with short term loans are the high interest rates associated with them.  It is hard to find a loan that doesn’t have very high rates.Credit card

Interestingly, 0% interest rate credit cards can be a very useful way of securing cash quickly without having to pay large fees, in fact you will be paying no interest on the loan until the introductory period ends.  In some cases the initial period can run up to as much as 2 years.

At the end of the initial period the rate will rise quite sharply, however some people move their balance to another 0% card.

It is best to make good payments on the balance each month if you can, because adding to the loan and moving it from provider to provider could be dangerous as the debt builds and you end up with a hefty loan to pay off after a few years.

Credit cards also need the borrower to have a good credit record before they are accepted.  This can rule people out who apply for certain short term loans because they have a poor credit record.

Flexibility

This can be a flexible way to borrow because lenders allow balance transfers between cards quite routinely and the savings in interest can be significant compared to other loans.

As with all loans, precautions need to be taken to make sure that there aren’t other ways to raise finance for whatever it is you are looking to purchase.  Make sure that you are happy to pay the balance back over time and the payments won’t make your life difficult financially.

This video highlights the dangers of credit card debt.

Are Short Term Loans Good Or Bad For You?

There is a lot of debate at the moment over whether short term loans should be restricted and greater regulation brought in to stop them being used so widely.

It is an interesting debate because on one hand the soaring levels of debt in the UK mean that people need to be aware of the dangers of going into debt.  However on the other hand why should UK consumers not have the freedom to choose to be able to take out a loan?Pound sign

Many would argue that if there is a demand for loans then it is right to offer them.  It seems that even if loans have extremely high interest rates, there are always people who will want to use them.

Cases like this often come down to how educated a population is, and in the UK it seems that there has not been enough education about money management.  School is the environment where people should learn about the pitfalls of high interest rate loans.  Something as important as financial security shouldn’t be learned the hard way, by getting into debt and not being able to get out of it.

Loans can be useful

A quick loan over a short period of time can be extremely valuable for someone who needs cash fast and doesn’t have anywhere else to turn.  Providing they are able to pay the loan back quickly without incurring too much debt then a short term loan could be very good for them.

This type of loan is bad for you when the loan is kept for far longer than it really should be.  If the interest rate is high it should be paramount that the loan is paid back fast.  Unfortunately some people find it too tempting to have access to cash very quickly and find themselves taking out far too many loans.  This inevitably leads to disaster as the debts mount up and can’t be paid for.

It can go both ways

It is easy to argue both for the pros and cons of short term loans.  They do have their merits despite many stating that they are a serious problem.  These people do have a point however, the loans are very bad for people who don’t use them responsibly, and better education is needed to stop this from consistently happening.

The Chief Executive Officer of the largest and most well known short term loan brand in the UK thinks that people will always want short term loans and believes there will always be a demand for them.

It can be quite hard to argue against this because there is truth to the fact that the numbers of people taking out these loans is increasing year on year.  There seems to be no slowing of growth despite the negative publicity that the loans market has had in recent years.

When the recession ended many people thought that the growth of the short term loans market would slow, but this hasn’t been the case at all.  If anything, the growth has picked up more as new firms enter the market and compete with the existing ones.

Comparing Short With Long Term Loans

It is not always easy to know which loan product to take out, there are different products out there for different needs but sometimes it isn’t clear what type of loan you might need.Loan paid

Short term loans are different from long term because they have a specific purpose in mind, they are there to bridge a gap in people’s finances for a specific period of time.  This is generally only over a few months or in some cases a year or two.

People are generally discouraged to borrow short term cash over long periods because of the high interest rates that these loans have.  If one of these loans are taken out for a number of years the borrower will easily end up paying more than the original loan cost in interest payments.

In this situation a long term loan would be far more suitable.  Longer loans have lower interest rates because the lender will make more money over the course of the loan.  A longer loan will mean paying a monthly payment for longer, but it will be less of a payment and generally won’t amount to as much as the original loan cost.

As always, avoiding a loan altogether is probably the best option.  Not everyone needs to take out a loan and some people turn to them too quickly.  If money can be raised by saving or asking family for the cash then this is generally a better option.

There are various forms of both short and long term loans, a mortgage can obviously be taken out for a very long length of time, normally 25 years, whereas a very short loan can be just for a week or month.

The length of the loan shouldn’t have any bearing on how stringently a lender is looked at when choosing a loan.  All lenders in the UK should be fully regulated and display their interest rates and other charges clearly on their websites and any other information they provide.

Below are some tips on choosing a loan in a short video.