While short-term loans should be your last resort, they are the most common and one of the quickest. There are a lot of choices for alternatives that don’t include taking out a loan, but there are also other loan options. Each differs of short-term loans in a few specific ways that can be beneficial depending on your situation.
Key Differences between Short-term Loans and Other Loans
According to specialists at the site MoneyPug, which is used to compare the best personal loans, the biggest difference between short-term and other loans are who you borrow from and how you do so. Furthermore, short-term loans allow you to pay the money back in two to 12 months. Each lender differs on how long you can take loans out, but they typically have longer borrowing periods than short-term loans.
Guarantor Loans
These are the type of loans that have the legal involvement of a third party who is the one who acts as the guarantor. This person is obligated to pay back the borrowers loan if they are unable to pay it back themselves. To take out this loan, you must have someone who understands the situation and is willing to take the fall for you. This can be tricky because the borrower needs to show the guarantor that they are trustworthy.
Secured Loans
A secured loan is a personal loan using assets like property to ensure the investment is covered if the borrower can’t pay it back. This is a risky loan, one that should only be applied for in when the borrower is in a real financial crisis.
Unsecured Loans
The opposite of secured, unsecured loans do not have a connection to assets. Instead it entails a complex financial agreement between the lender and the borrower and is usually offered with a term length from one to seven years. Lenders set the maximum borrowing amount.
Peer to Peer Loans
Peer to peer loans refer to borrowing from individuals and smaller institutions instead of big banks and other lenders. Due to this, interest rates are lower, creating more suitable and efficient loans. These are sometimes the most beneficial loan agreements.
The Application Process
The application process for short-term loans is easier than other loans. First, they will ask you a few questions including how old you are, if you are a citizen of the UK, if you have a British bank account or debit card, what you earn at your job, and what your mobile phone number is.
With that information they determine whether or not you will be able to make payments on time. While lenders will typically want to contact your boss, they will sometimes use third-party companies to check that you are on the payroll of your employer.
How Long Does Each Loan Take?
Short-term loans are designed to help you get quick cash in emergencies and unexpected situations. If you continuously take out short-term loans, seek financial advice from a free advisor. Short-term lenders understand that their customers need cash in a hurry and approve loans quickly. Sometimes the money will be in your bank account within an hour. This is dependent upon the lender understanding your financial situation. If you have bad credit, you may need to provide additional information. Still the loan should be borrowed and paid back under a year.
As for longer term borrowing, guarantor loans take between one and five years. Peer to peer loans can take from 6 months, the shortest loan period for unsecured loans, and five years. Personal loans can take up to seven years. Secured loans, on the other hand, have borrowing terms ranging from six months to 35 years. Depending on your situation, you can get the loan that is right for you.