Borrowing money is something most of us need to do at one time or another. Whether it is a mortgage to buy a home or an auto loan to buy a car, loans play an important part in our society. Unfortunately, many people take this too far and secure a larger loan than they need, or one that they cannot pay back.
This can ultimately lead people to hold a lot of debt, which wreak havoc on your bank account as well as your credit. In fact, the average debt of a citizen in the UK is over £8000, not even including their mortgage. This is a growing problem and many are struggling as a result of large loans that they can no longer afford. Thankfully, there are still lending options that won’t lock you into payments for years, like short term loans.
Short term loans are usually anywhere between 1 month to 2 years in length, and the borrowed amount usually ranges from a few hundred dollars up to a few thousand. There are many providers of short term loans from small local lenders to online lenders (like BingoLoans). There are many different benefits to using a short term loan, and we will look at a couple of them within this article.
You Will Often Pay Less Interest
While the amounts borrowed on longer loans are larger, it is usually the interest that is the true killer. Over a 20 or 30 year loan, interest can easily add thousands and thousands of dollars to the total amount paid, depending on how much you borrow.
Sure, shorter term loans usually have higher interest rates, but you will only be paying that interest for a few months or so, not multiple years. As a result, you will pay much less interest over the lifetime of the loan, due to how short it is.
They Are Less of a Burden Than Larger Loans
While getting large loans are common, there is no doubting how much of a burden they can be. Having a large loan looming over your head for decades and watching the amount of interest being paid can be a very stressful situation. Also, with this loan existing, it will make other purchases you make that much harder.
On the other hand, a short term loan will last for much less time and be for a much smaller amount, so it won’t be nearly as stressful. You will pay off your debt quickly and will be free of it much faster than with a larger loan.
They Can Help Increase Your Credit Score
Having a good credit score can often put borrowing money into easy mode. It will grant you better interest rates, better terms and will allow you to borrow as much as you need. However, which many people struggling with debt and their finances in the UK, many are struggling with a bad credit score.
Thankfully, improving your credit score isn’t difficult as long as you use credit intelligently and pay off your loans. As a result, taking out a small and short term loan, and paying it back on time is a very useful and successful strategy for increasing your credit score. Of course, make sure you can afford to pay back the loan in the timely manner, or this could end up hurting your credit even further.
Hopefully this article has helped you see and learn some of the many benefits of utilizing short term loans. While they are not for everyone, they are perfect for those who just need a little money and don’t want a multi-year loan.