PAUSE AND THINK BEFORE YOU BORROW
Short-term loans can help you out of a hole when the unexpected happens and you just don t have enough money to cover the essentials this month.
The trouble is, if you just think about solving the immediate problem without looking a bit further ahead, you could be storing up a load of trouble. The clue is in the title, these types of loans aren t intended for longer term use and if you are already in financial difficulties are unlikely to help in the long run.
When used in the right way, short-term loans can give you choices about your spending that might not otherwise exist. But just to make sure that you make a good choice, ask yourself these three questions before you apply for the cash: 1 Do I really understand what getting cash now is going to cost me in the future? (Exactly how much will I have to repay in pounds and pence, by when and how much extra will it cost me if I can t pay on time?) 2 If I make the loan repayment(s), will I have enough money to pay for all the bills, food and travel until my next payday? 3 Is it at least 6 months since I last took out a short-term loan? If you answered NO to any of the above, then please read the section What to do next.
If you said YES to them all, then a short-term loan may be for you, but here are just a few things that are really worth thinking about before you borrow. n Only borrow what you absolutely need, not the maximum the lender can offer you. n Are you borrowing for an emergency or for a treat? Do you have to spend the money this month, or could you save a bit this month and then make the purchase without borrowing next month? Would you still think that the sale bargain or not-to-be-missed night out was worth it if the price tag included the cost of the credit? n Pick your lender carefully. Choose one that is a member of a trade body such as the Consumer Finance Association (CFA). All lenders that belong to the CFA are regulated by the Financial Conduct Authority.
What to do next So you had to say NO to at least one of the questions here s what we suggest... 1. Not clear about the cost? If you re not clear about the cost of the loan, ask some more questions or use a comparison site to look around for another lender. There is a limit on the amount lenders are allowed to charge so if the lender isn t being clear, that is probably a warning sign. You should be really clear about what s involved and there shouldn t be any nasty surprises. 2. Not sure how long you need to repay? Think about how much you can afford to repay each month and how long it will take you to repay the loan comfortably. Do your research. Many CFA members offer longer term instalment loans that may suit your needs, your bank or local Credit Union may also be able to help you.
3. Less than six months since you last took out a short-term loan? If you find yourself taking out short-term loans regularly, especially if you can t get through the month without one, then you definitely need to STOP and take a long hard look at your financial situation. If you are using short-term loans for treats and socialising, it is an expensive way to live and will at some point become unsustainable it would be better to make an affordable plan for your spending. If you are having to borrow money to cover essentials or pay off other credit, have a look at the Struggling to repay section.
Struggling to repay? So, what should you do if life goes pear-shaped and you can t afford to repay your loan on time? TALK TO YOUR LENDER! There are options available to you.
Protection through regulation Lenders have to meet strict rules that are enforced by the industry regulator, the Financial Conduct Authority. These rules are there to protect you, so if you re thinking about taking out a short-term loan, here is a list of things that you should expect from responsible, regulated lenders. Affordability checks Lenders have to check that you can afford to repay the loan you are applying for. So they will ask you about your income and expenditure as well as running background checks to confirm your creditworthiness. Rollover limits Short-term loans should never become a long term debt, so although you might be able to request an extension on your loan sometimes known as a rollover there is a limit of two loan extensions. You would need to pay the interest on the due date and your lender would carry-out another check to see if you can afford the extra payment(s). If possible, try and pay off part of the loan now and only rollover the remainder because this will reduce the charges you pay. Restrictions on Continuous Payment Authority You ll be told how payments will be deducted from your bank account using details on your bank card. This is called a continuous payment authority. Under the rules, a lender will not try to take payments from your bank account more than twice. Your lender will also explain your rights to cancel this authority, but do remember that if you cancel, you will still owe any outstanding debt and will need to provide an alternative method of repayment to avoid incurring any extra charges. Cap on the total cost There is a cap on the amount that lenders can charge and your debt can never be more than double the amount you originally borrowed. If you are unable to pay then get in touch with your lender and explain that you are having financial difficulties. They will have options available to help you.
If you have multiple debts and owe money to several different companies (short-term lenders, banks, credit cards etc.) then do not struggle alone, there are people who can help. Contact one of the providers of free debt advice listed below, they will be able to help you put a plan together that deals with all the people that you owe money to and make sure that you can keep a roof over your head and put food on the table. StepChange Debt Charity www.stepchange.org 0800 138 1111 National Debtline www.nationaldebtline.co.uk 0808 808 4000 The Money Advice Service www.moneyadviceservice.org.uk 0300 500 5000
To borrow or not to borrow? Only you can work out what is the right thing to do given the situation in which you find yourself but we hope that we ve given you some food for thought. Whatever you decide, make sure that you ve been honest with yourself about all the consequences, and considered whether a different course of action would be better in the long run.
The Consumer Finance Association is a trade association that represents the interests of responsible businesses offering short-term, unsecured personal loans. To find out more go to www.cfa-uk.co.uk