Why budgeting for short term loans is worth doing

Warning: Late repayment can cause you serious money problems

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The short term loans financial market has increased drastically over recent years, previously the only form of short term finance was a 1 month payday loan however this clearly is no longer the case. People can take out forms of instalment loan and pay back over a shorter time frame than say a bank loan making it more of a short term financial solution. This offers the customer an amount of flexibility and this is much better as previously this was probably just not the case. Before any finance however is being looked it a customer need to question whether or not they definitely need the finance and how much are they looking to borrow and what lender should they go through. They also have to make sure they can afford the loan and make sure any repayments that are due can be paid and are realistic to that persons financial circumstances. I am going to explain in more detail using this article below and I will detail why budgeting for short term loans and other finance is important and therefore always worth doing.

Budgeting is always very important because takeing any loan that is not affordable should not even be applied for as even if successful you will not have teh funds to pay it back. Missing any loan repayments can have severe negative consequences for that person involved. People should budget then to make sure their loan agreement can be honoured and repayments quite simply should not be missed. If, after they have taken out a loan, and they know that it is not affordable should never hide from debt as it only makes matters worse and never will make that debt go away. They should therefore contact the lending company in question and see if they can action another agreement for a potentially reduced amount. With new regulations on forebearance it is likely a lender will accept the amount offered providing they can see that it is genuinely all that can be afforded. They can then put the borrower on a separate agreement whether it be for a temporary or a permanent bases. If people do ignore the debt and do not make contact then the loan will most likely enter a default state and this is the worst stage for any credit file meaning for the future if a customer does intend to borrow again it may be declined. Having a missed payment on any finance will affect the credit file and this will honestly make obtaining credit harder and more expensive to achieve.

A way I have found useful when budgeting myself is calculating what my disposable income is and then staying in this budget and not therefore making me get into debt. A disposable income works out the money someone has to themselves each month after all their bills are paid including rent, debts and other living expenses are made. To find out what this figure is the person has to add up all their monthly income including wages, any benefits potentially due and other incomes and then they must take from this their outgoing expenditure including rent/mortgage payments as well as other debts they may owe and the figure left after this calculation is the disposable income. This amount as mentioned previously is the amount a person has to themselves after debts have paid however going over this figure can result in payments being missed so when someone budgets for this they should clearly not exceed the amount. So if someone later down the line decides that they need a loan of some kind whether it be for short term or long term reasons they can use the disposable income as a figure to show whether or not the loan can be repaid. Any amounts due on the loan will be taken form the disposable income so if that figure is high the loan can be repaid comfortably but if it is low or does not cover the due instalments then that finance should be looked at no further and should definitely not be applied for. If someone finds themselves with a low disposable income and is really generally struggling to make ends meet and repay their debts there are charity debt organisation that can assist and are free of charge. They can just give general advice or can look at arranging plans for people to help them back on their financial feet. A couple of names that come to mind regarding this is Money Advice Service or Step Change debt charity.

Final thoughs before considering short term finance

Before any finance is even looked let alone applied for the person considering this should ask themselves a few questions such as do they definitely need the finance in question and how much realistically are they looking to borrow. They should also ask what kind of loan it is that they need for example is it a short term loan for a relatively small amount, maybe an instalment loan over typically a longer period or is it possible car finance that is wanted. Another common question used is the lender that has to be chosen, here there are so many companies and they all offer a range of different services and financial products. People can apply for loans directly through lenders or possibly go to third party agencies to get finance granted (brokers basically). It is very important when considering this that the customer can successfully budget for any loan needed so when they know repayments are due and for how much they can make them comfortably.