6 Month Loans – What are the benefits?

 

Warning: Late repayment can cause you serious money problems

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Representative Example: Representative 1286.98% APR on a loan of £300.00 with 5 monthly repayments of £101.03 Total amount repayable £505.13 Annual interest rate (fixed) 290%

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Author: Internal Marketing Department

 

There is several types of short term loans currently available, each of which allowing the customer the opportunity to borrow a small amount of money for a set period of time. Often the focus of the customer is the amount which needs to be borrowed. This means the customer is likely to search for a provider who, first and foremost, can offer the amount they need. Typically a short term lender will offer loans from £100.00 up to £1000.00. A first time applicant can expect to be able to borrow up to £500.00 in most cases with lenders considering increased amounts once a history of repayment has been established.  

For many the idea of budgeting using a Loan Budget Calculator is a very common one. The concept is easy in that it simply asks that you review your monthly or weekly expenditure against your monthly or weekly income. This allows the knowledge of what is realistic in term of ‘disposable’ or ‘spare’ income. It is this spare income which can be used to cover the unexpected bills and activities the month presents. When however the spare income does not cover the cost of something required, this is when a short term loan can be called upon. It is important to recognise that the concept of a short term loan is simply that; it should not be used to cover a longer term need. As we have mentioned the amounts available to borrow remain relatively small and therefore should be repaid quickly so as to ensure a bigger problem does not unfold.

Often a consumer will call on such a loan in unexpected scenarios where an expense have arisen that could not have been planned for. Examples of this may be a broken car and washing machine, an urgent travel expense or even an ill relative. In these examples the outcome is definite and therefore the expense, once paid, will not continue. This leaves the consumer in a position where the amount therefore borrowed can be repaid also as the disposable income becomes available again. When consumers borrow for the wrong reasons and repeatedly, this can cause a build up of debt which is not realistically possible to repay. Examples of this include, borrowing the money for a night out, a trip away, clothes and presents. If these things are not living essentials then really, they are not needed. Taking several loans to cover such activities is another thing that is definitely not recommended because it quickly becomes an expensive exercise and can lead to severe financial problems.

Assuming the consumer is borrowing the money for a valid reason and has the Intention to Repay Loan, it is next important to consider which repayment term is most suitable. Classic one month loans offer a somewhat restricted repayment term in that the consumer must repay the full amount on the forthcoming due date. This may be suitable depending on the normal level of disposable income the customer has available. However if the expense driving the loan is greater than the normal level of disposable income, this could mean realistically the customer should be looking elsewhere.  There is the option of an extension for these loans, where simply the interest is paid to delay the full repayment until the subsequent pay date, but ultimately they are not really providing a sensible lending opportunity. The other thing that should be considered is that the regulations now limit the number of extensions and also the lender has to assess this as an affordable solution too.

This is why instalment loans can be considered a far more flexible and accommodating option for most consumers. Like other short term loans they can offer the ‘emergency’ funds in a short period of time but are more varied in your approach to repayment. Instalment loans can allow the customer to make an informed decision based on the different terms available. For example 6 month loans, where the customer has 6 equal instalments and upon receipt of the final payment the account is closed. A longer repayment term, whether it be 3, 6, 9 or even 12 months allows the customer to choice a monthly repayment that is affordable. It is because of this reason that the instalment loans over the longer terms are now becoming increasingly popular amongst consumers. The opportunity to have a 3 or 6 month loans means customers are no longer faced with the choice to extend endlessly but instead can budget accordingly. Again, these instalment loans do have their downside, the longer you borrow the more you will have to pay back overall.

Representative Example: Representative 1286.98% APR on a loan of £300.00 with 5 monthly repayments of £101.03 Total amount repayable £505.13 Annual interest rate (fixed) 290%

By Gemma Lane