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The Benefits Associated with Short Term Borrowing

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Short term borrowing often comes under fire in the media, but is it as detrimental to one’s financial health as some would have us believe? In a nutshell, no! Short term borrowing offers some surprising benefits, but only if the borrower exhibits sensible borrowing behaviour, which many borrowers, unfortunately, do not.

It can’t be denied that short term borrowing carries with it risk, but so too does long term borrowing like mortgages. The real risk associated with short term borrowing for most people is borrowing irresponsibly, which would affect long term borrowing negatively similarly. In fact, irresponsible long term borrowing is far more dangerous than irresponsible short term borrowing due to the larger amounts of money involved. That, however, doesn’t seek to justify borrowing carelessly in any way.

If you’re going to apply for a short term loan, you must be completely confident in your ability to repay what you borrow on time. If you’re unsure about your ability to repay what you plan to borrow, just don’t do it! The risk of defaulting on a loan, even a short term loan like a handy payday loan, just isn’t worth the knock-on effects.

These include incurring a poor credit rating which could make borrowing on good terms difficult in the future, not to mention a significant rise in the amount you owe that repeatedly compounds and would, therefore, become increasingly difficult for you to pay back.

Here are some of the benefits now commonly associated with short term borrowing.

A Good Introduction to Borrowing

Short term borrowing is an excellent introduction to borrowing in so many ways. For those who are new to applying for loans and credit cards, for instance, applying for a fast short term personal loan online is an outstanding way to accumulate borrowing experience.

You’ll learn about interest rates (APR) and repayment commitments

You’ll learn how the loan application works and what you need to do

You’ll learn how to compare lenders and what to look for in a lender

Additionally, you’ll also accumulate experience in responsible borrowing behaviour. This is a very good point to make, because accumulating borrowing experience with a small short term loan will help you to create a budget, prioritise loan repayments, and make repayments on time. This experience will certainly prove instrumental in the future when you look into borrowing larger amounts over longer periods of time. 

credit score

Get a Credit Rating

If you don’t have a credit rating yet because you haven’t applied for a credit card or a loan before, then applying for a short term personal loan is an excellent way to get a credit rating. If you’re not sure why it’s important to have a credit rating, here are three reasons why you need to get yourself one if you plan to borrow in the future.

Lenders look at credit ratings to determine the risk of lending to you

If you have a good credit rating, lenders will happily lend you money

If you don’t have a credit rating, forget about applying for a mortgage

Basically, if you plan to borrow in the future, and most of us do, you need a credit rating because your credit rating gives lenders a good idea of how much of a credit risk you represent. Without one, you stand no chance of applying for a loan to buy a home of your own, which means you need to work at building a high credit score.

Borrow wisely and always make repayments on time for the correct amount

Limit the credit applications you make to those you’re sure will be successful

Understand that it isn’t only loans and credit cards that affect your credit score

Borrowing short term and for small amounts that you can comfortably repay on time is an excellent way to get yourself a credit score and work at improving it. This will enable you to borrow comfortably and on favourable terms in the future.

What’s more, if you have borrowed in the past and you’ve been somewhat lax about making repayments on time, applying for a short term personal loan is a great way to improve your credit score.

But what if you’re unsure about your credit rating, what steps can you take to find out what your credit score is so you’ll know whether you need to improve it or not?

How to Check Your Credit Score

Checking your credit score is actually very straightforward and here in the UK there are three main credit agencies that you can check your credit score through. These three credit agencies – Experian, Equifax and CallCredit – compile information on how well consumers manage their credit and repayment commitments and assign each consumer a credit rating that lenders use to determine lending risk.

For a £2 fee, you can check your credit rating – these agencies are bound by a statutory obligation to provide consumers with a copy of their credit report for this amount . However, CallCredit, trading under the name Noddle, and ClearScore, are currently offering all consumers free access to their credit reports. If you’re not about to apply for a home loan or a large personal loan go with the free option– if you are, it’s advisable to apply to all three.

It’s Convenient

Generally speaking, you shouldn’t prioritise a lender because they make applying for a short term loan convenient. However, if it’s an emergency and you need access to money right now, applying for a short term pay day loan may be the best option you have available. This is especially true when the only borrowing options you have are paying the local pawnbroker a visit or borrowing money from friends and family.

For people who don’t have a credit card, lack a credit score or simply need access to money right now because of an emergency, applying for a short term payday loan can prove an excellent option to pursue. And as has been discussed here, there are actually quite a few notable benefits now associated with short term borrowing.

About the author

Peter Davis Peter Davis is a Marketing Analyst at PaydayLoan123 specialising in financial products. Peter writes most of our articles as he stays up to date with the latest information. He enjoys most sports, particularly playing football and watching his favourite football team. Peter really like his food too as we have all witnessed first hand!

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