How to avoid short term loans debt

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Short term loans can be incredibly useful if used correctly to assist and support a consumers existing income. This type of lending is best placed to support a consumer’s normal level of income when an unexpected expense arises. Short term loans should not be relied upon to constantly ‘top up’ or increase the funds that are needed monthly to cover normal living expenses as this could lead to a larger problem down the road. For many the use of such loans has become common place with most consumers being fully aware of what this lending is and where is can be sourced. When the market first came into existence about 10 years ago it served to provide a new resource which had never been so readily available before. Consumers of all ages were introduced to the idea of being able to obtain a small amount of money and quickly. This meant for many short term loans became a reliable resource. The type of product offered in the market has come a long way from its original form and as a result consumers using the market nowadays receive a much better level of customer service and therefore care. The lump sum style repayment loans have now vastly been replaced by a more flexible instalment based product, which has given choice back to the customer, please click here for more information. That said it is still massively important lenders and borrowers alike continue to act responsibly to avoid debt levels within the sector increasing as they did for such a long time.

As mentioned above at the start of the sectors life the product being offered was a single instalment repayment loan. In very little time there was a large selection of lenders available who could offer a loan between £100.00 and £1000.00 to their customer base. Given that most lenders offered exactly the same product the main selling point came down to speed of application with some lenders promising to approve a loan in a matter of hours. This meant for many consumers the resources seemed endless. Given that many of these consumers were new to lending of any kind, it was possible to see consumers decide to borrow from multiple lending sources at any one time. This did cause issues due to the nature of the loans themselves. Given the fact that the loans typically centred round the fact that once the customers pay date arrived the total amount borrowed would be repaid, for many this meant a large payment needed to be found. Typically these loans would carry in the region of £30.00 per £100.00 borrowed which meant that a customer could soon be facing a total repayment of £500.00. Obviously if several of these were obtained within a short period of time, a consumer could have been committing to the majority of their wages being made to short term lenders.

For those customers who quickly released this was not affordable, the solution offered by the lender was not always the best one, but was for many teh only one. The lenders at the time proposed that borrowers pay an extension fee where the repayment in full was not possible which meant repaying that month’s interest to delay the total repayment until a later date. Effectively an extension never served to reduce the outstanding debt and therefore for consumers they felt a sense of being trapped in an agreement which was not affordable. Again considering many consumers at the time could easily assess several of these loans, meant many were extending at least a few agreements at any one time.

It is not therefore surprising then that as the years passed and better regulations for protecting the customers were introduced something had to change in order to allow consumers the ability to repay their debts. This is why instalment loans has risen in popularity a great deal in the last few years. Instalment based products allow the customer the opportunity to repay the loan over a time which is suitable to them. Many lenders now offer terms of 3, 6, 9 or even 12 months, for a good article on 6 month loans click here. This means consumers are not forced into agreeing to a lump sum which does not fit their budget. It should of course be noted that the longer period the loan is taken over the more costly teh loan will be overall. This new approach to lending in a more responsible manner is further backed up by the fact that lenders now assess their applicants in a more detailed way. Many lenders now actually ask an applicant to declare all monthly outgoings and incomings in order to ensure they can propose a monthly repayment term, or several, which will fit that budget.

By Kieran Moulden