Stretching your monthly income to meet your needs can be difficult, and sometimes you may need financial help, with short-term and payday loans being some of the most well-known solutions for quick cash. But how much do you know about them, and what’s the difference? Read on to learn more, as we compare both of these finance options.
What is a short-term loan?
Short-term loans are typically paid back over as little as 3 months, to around two years. Anything longer than two years is considered a long-term loan. These loans can be used to help with your personal finances, specifically if you are struggling to make ends meet and you’re faced with an emergency expense, or if you are looking for a way to grow your business, improve monthly cash flow, or use it to help with recruitment. Short-term loans are typically supplied by alternative lenders, rather than traditional banks, but there are a few advantages that come with this…
What are the benefits?
So, now we know more about what a short-term loan is and what it can be used for, you might be wondering what makes them stand out from the rest, and why should you choose them to boost your finances. Applying for a short-term loan allows you access to money quickly. The approval process tends to be a lot quicker than you’d find with traditional lenders, so you can benefit from additional cash when you need it most. The application process is also a lot less intense. You can complete your application online without having to leave your home, quickly and easily. You can also be approved for a short-term loan even if you don’t have a great credit history – alternative lenders are more lenient and base most of their decisions on affordability.
What are the drawbacks?
But there are also disadvantages to think about before you choose to use a short-term loan. Because requirements are more flexible, you’re likely to incur increased interest rates so lenders can be assured they’ll make their money back. Short-term loans also tend to cover smaller costs, so the lender does not have to worry about forcing the borrower into further financial difficulty as it is paid over a shorter time frame – they need to remain affordable. You also need to ensure you know how much your loan will really cost you, as there may be hidden fees.
What is a payday loan?
Payday loans are not too dissimilar to short-term loans in the way that they are both loans that offer small amounts of money over a shorter period. Payday loans are funds that you can borrow from alternative lenders, that are mainly based online that can help you pay for an unexpected expense that your income cannot cover and is finance that is intended to help you until you get to payday. They are most commonly used to help deal with emergencies and need to be paid back within a month.
What are the benefits?
As we mentioned above, payday loans can be helpful to help you deal with emergencies. If you’re struggling to stretch your income to cover your living costs, and you get an unexpected bill, these loans can help you manage your finances. They are also easy to apply for and allow you access to funds almost immediately. Like short-term loans, they are accessible even if you have a bad credit history, which makes them preferable to traditional loans. The application process is quick and easy, and lenders will only need a few pieces of information from you to make their decision.
What are the drawbacks?
There are a few disadvantages that come with using payday loans to help you boost your finances, which should be weighed up to help you decide whether this finance option is the best for you. These loans can end up being incredibly expensive due to the high rates of interest and hidden fees that come along with them. Because approval requirements are not as stringent as you’d find with traditional lenders, alternative lenders must increase interest rates to ensure they’ll make their money back. They can also make it easy to get stuck in a cycle of debt. Payday loans should really only be used when you’ve run out of options to pay for emergencies – borrowing a payday loan could worsen your financial situation.
Which is best?
So, should you choose a short-term or a payday loan? It depends on what you’re using it for. Generally, short-term loans may be less dangerous when it comes to your financial health as they give you a longer term to pay off your debt. However, if you need money immediately, it’s easy to see why some opt for a payday loan. It’s always best to keep the disadvantages in mind so you can make the most sensible decision.