Category: Loans


How Risky is a Short Term Loan?

There are different types of short term loan available, but essentially they lend a relatively small amount of money for a short time period. Many people use them but there are those that say they should not be taken under any circumstances because they are too risky. Obviously everyone is entitled to have an opinion, but if you are trying to decide whether they would be a good option for you, then you will need to know more about them and what the risks are.

Some short term loans are more risky than others. You will need to look at the risks on the specific loan that you are considering to see whether you feel it is worth having. You will be able to see what these are by looking at the terms and conditions, which can often be quite complicated and so are worth reading very carefully.
The main risks associated with short term loans are the consequences of not being able to repay them. These are the same with any loan, but they are worse for a short term loan because the fees for not paying on time can accumulate very quickly and it can be harder to negotiate alternative repayment terms.

Short term loans are becoming better regulated in many countries to try to prevent the costs rising so much. However, they are still costly compared to some other types of lending and it is often recommended to look at alternatives if you can. It can take time to compare prices of loans, but it makes a significant difference to the amount that you pay back in the end and so it is worth it. Even if your credit record is not that good it is worth trying alternatives that are cheaper. You may think that you will just be refused and short term loans often do not check so you are more likely to get one. It is still worth trying though as you never know until you apply as to whether they will decide to lend to you or not. A few minutes research and applying could make a really big difference.

If you are confident that you will be able to make the repayments on time, then it is less risky to take out a loan like this than if you are unsure. The loans can be expensive anyway and if you do not pay them back on time the costs can really rise and easily become completely unmanageable. That is why you should be really sure that you will be able to repay the loan if you decide to take one out. Consider what other expenses you may have in the short term and when the loan would need to repaid and how much it will be. This should allow you to calculate whether you will have enough money to pay it back.

Some short term loans use your car as collateral. This can be really risky if you do make the repayments as they can repossess your vehicle. This could mean that you will not be able to travel easily and could even mean that you will not be able to go to work. This could be a disaster as it would mean that you would have no source of income.

Any sort of borrowing can be risky. This is because you have to be sure that you will be able to pay it back and it is not possible to know what will happen in the future. You will never know whether you could lose your job, become too ill to work, want a family and give up work to look after them or need to care for a sick relative or anything else that might impact your income. It is easier to have confidence in what may happen in the short term rather than the long term though. If you have a twenty-five year loan, such as a mortgage, it will be hard to know what you might be doing in twenty year’s time but with a short term loan you should know whether you will have a job in the next few weeks. However, the short term loans are expensive and you will end up having to pay a lot of money back in a short time. This could mean that you will have to find a large sum of money fairly quickly. This can mean that you will struggle the following month as well, because of having to pay back the big loan including the large amount of fees that go along with it. It can lead to a cycle of borrowing each month, to make ends meet and then repaying next month and the amount borrowed will increase each time until it becomes too much to be able to repay.