Assessing Your Risk For A Short Term Loan

In the recent concerns of the Archbishop of Canterbury and Wonga, short term loans were the main subject.

License: Creative Commons image source
License: Creative Commons image source

The Most Rev Justin Welby talked at length to Wonga’s ‘boss’ about offering Wonga and companies that offer short term loans some competition from credit unions. Wonga considered competition to be a good thing.

Peer-to-peer lending

Peer-to-peer lending where an investor offers money to be loaned out for short term loans are becoming more and more popular. This type of personal investment and borrowing is giving great returns for its investors. Especially compared to returns from traditional investment sources.

Companies that offer these types of personally funded loans are gaining in popularity as more of us find a need for short term loans to fill financial gaps. The top reasons you might need a short term loan are:

In an emergency

The most common reason people apply for a short term loan is in an emergency. A piece of equipment necessary to your day-to-day life breaks down and needs repairing i.e. your car or a kitchen appliance. You don’t have spare funds to meet the repair or replacement bill immediately available.

An unmissable opportunity

Every so often in life an amazing opportunity arises which would make a difference to your life/save you money in the long run. When it happens you don’t have the immediate funds available.

Alternative to an unplanned overdraft

An unplanned overdraft can cost you as much as £25 a day. That’s something you didn’t see coming. Taking out a short term loan could avoid this. Of course you will pay for this privilege too but you’ll know in advance how much.

Keep to the terms

Short term loans are only supposed to fill a gap. They are deliberately short term with agreed terms. As long as you replay them on time the costs are laid out.

Even if you do need to extend the loan period, the costs are still readily explained at the outset. But this is when it can cost you considerably more.

Sensible planning

If you need a loan to fill a small gap, plan sensibly and check out the rates and deals around from companies such as Wonga, PiggyBank and Zopa. These companies offer an answer to a short term problem. They are fast and easy to apply for and that is often why they are criticised.

Not an easy option

Because of the ease of application and quick turn around, a short term loan applied for on line has become what some see as ‘an easy option’. However most of these loan applications have to pass the companies criteria before the loan is passed and made available.

However most peer-to-peer lending platforms do thoroughly assess applications to see if the borrower can repay the loan. If your credit record isn’t good, you are unlikely to be accepted. After all you are borrowing an investor’s money so the lending company needs to be able to reassure them that their money is as safe as it can be.

This is also reassuring for you. It means the company offering the short term loan only lends responsibly. This is important as you do not want to risk finding yourself in a position where you cannot afford the repayments.

About the Author: By Rob Rudd. Rob Rudd enjoys researching and writing about financial matters. He contributes regularly to several business and finance websites.

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