Warning: Late repayment can cause you serious money problems. For help, go to moneyadviceservice.org.uk

Is a short-term loan right for you?

We all have times in our lives when we find money is tight. It could be the time of year, it could be that lots of bills have come in at once, or you could find that things are broken or not working in your home. When this happens and when you need to pay out, this is when many people end up heading to a short-term loan company such as Fernovo in order to borrow some cash.

As the name suggests, the idea of a short-term loan is that it allows you to borrow a small amount of money for a short time. They are quick and easy to apply for and the money is put into your account in no time at all. A short-term loan is either paid back at the end of the month (hence the phrase payday loan) or over the course of a few months.

When taking out a short term loan you must also always ensure your short term loan company is FCA (Financial Conduct Authority) authorized, like Fernovo, which means that your consumer rights in terms of agreed rates and practices are protected. You will, of course, pay interest on your loan and the total amount will depend on the sum borrowed and the interest rates charged. The good news is that since 2015 the FCA has set a 0.8% per day maximum interest rate and should a borrower not repay his or her loan back according to the terms of their agreement default charges must not exceed £15. Regular Fernovo customers will also realise that you can pay a lot less than the FCA limit – our VIP customers (those who have successfully completed one short term loan with us according to the terms of their loan agreement) automatically qualify for a rate of just 0.5% (a massive 40% less than the FCA maximum!). In practice this means that on a £300, 3 month loan you could pay back up to £60 less than other short term loan companies.

So why are short term companies so popular if you have to pay quite high interest rates? The answer to this is that if you were to go to your bank for a loan – the traditional method, it would most likely take a long time to process your loan application, and that they are more geared to longer term loans. Online short term loan companies like Fernovo are fully geared up to quickly process applications and deliver emergency cash fast. Of course, there is documentation to complete but this is done online and the process has been streamlined to ensure the process is as quick as possible. At Fernovo we have a super smart hi-tech NOVOQuote decision engine that can provide you with a loan pre-approval response in under 60 seconds – with no credit reference required.

However you obtain your short term loan you should never resort to the unregulated and illegal ‘door step lending’ sector where horrendous loan interest rates can be applied and dubious methods employed to extract interest payments. Always check that your lender is FCA approved.

If you are thinking about taking out a short term loan you could also consider other alternatives such as:

Pay advance from your employer

If you are working and you are paid on a regular basis, then you may find that an option open to you is to ask your workplace if they are able to give you a pay advance to cover what you need. You shouldn’t have to pay any interest in this, instead you will simply be paying for whatever it is that you have borrowed out of your next pay packet. Of course, no employer would like to do this on a regular basis so ensure that whatever reason prompted the need for a loan, it can be better accommodated moving forwards.

Friends and family

Chances are that you will have people around you who, if you asked, would be able to help you in times of need. It is hard asking for help from friends and family, but sometimes this is a much better option than taking out a short-term loan. Hopefully, they won’t charge you any interest on what you have borrowed and they will usually ask you to pay it back as and when you can.

Credit cards or overdrafts that you already have

One credit facility to look at before you start to think about short-term loans is whether or not you can pay for what you need on a credit card or out of your overdraft. These can be quick to access, but they will cost you quite a lot of money especially if you take a long time to get back into credit. It’s easy to drift into long term payback situations where with a short term loan you have the discipline of a contractually agreed payment schedule. You may have been reading the media about how the big banks have got into hot water through charging excessive amounts for overdraft fees, so much so that the Financial Conduct Authority has said that from April 2020 banks will have to charge the same for any overdraft and be required to advertise the products in clearer ways. This will include stating annual interest rates to help customers compare them with other products.

Credit Union

The final thing you could consider is Credit Union. These non-profit organisation allow people to borrow amounts of money from them, that is then paid back at an interest rate that is lower than some others out there. They work much like a bank, but as they are not for profit, their interest rates are kept at a manageable level. Which means that you could pay much less back in the long run. However, as with the banks themselves it’s likely that getting a loan will not be a particularly quick process and will probably involve a trip to the local branch.

Always make sure that you research your loan before you take it onSo, you’ve decided to take out a short-term loan, then the first thing that you should do is make sure that you take the time to research the loan that you are planning to take out. In addition to checking for their FCA approval. You should also, most importantly compare the loan company with others out there. By comparing loans, you will make sure that the one you have applied for has the best interest rate and offers the best benefits possible.

Explore the small print of your loan

Every single loan out there that you can take out will have small print. It is all too tempting not to bother reading the rules and terms that come with a loan that you are going to take out. However, when it comes to your money you should always be careful.

Take the time to read through the terms and conditions that come as a part of the loan, find out the fees, charges and penalties that apply and make sure that you understand them fully. That way you can make sure that you are protected and that you are not going to end up paying charges that you haven’t planned for.
Steps have been taken of late to make sure that any short-term loan companies only charge interest and default fees that are fair. This has been put in place by the FCA and every single short-term loan company has to make sure that they fit within the guidelines that are set out. The FCA did this in order to protect those people that have to apply for short-term loans.

Manage your relationships with money and with your loan too

If you don’t think you have any other option than to take out a short-term loan, then when you take it out, you need to make sure that you think about the way that you can not only manage your loan but also your relationship with money in the future.

The trouble with a short-term loan is that it is all too easy to find yourself in a vicious cycle. You borrow the money, spend it on what you need, then you carry on, spending as you normally would. When the time comes around for payday (and for you to pay back whatever it was that you borrowed) then you don’t have the money spare.

Therefore, if you intend to take out a short-term loan, then it is important that you also take the time to look at your spending habits and your relationship with money. There are a variety of tools that you can use to help you with your budgeting and how you spend money. One of the most common is the Money Advice Service, but you could also take a look at Step Change too, who will help you to work out a budget that you can keep to and that will help you to manage your money in the future.
There are always going to be times when you need to borrow money and fast, but you should always try your best to look at the different options that are open to you and that could be better for you in the long-term.

If you do need to take out a short-term loan, then it is important that you take the time to find out more about what is on offer, what their rates are and how much you will end up paying in the long run. Knowing this will not only help you with your future planning when it comes to paying the money back, but should also help to stop you from getting into trouble.

Check out the loan rates at Fernovo here

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