Short term borrowing

Most of us find ourselves in need of finance from time to time, whether it is to purchase a home, buy a new car, treat ourselves to luxuries, or fund a special event. Often, such as with a mortgage or car loan, we need to take finance out over a long period of time in order to afford the repayments. However, there may also be instances where we wish to borrow a smaller amount of money for a shorter period of time, such as to pay for a holiday or fund emergencies. For those looking to take out credit for a shorter period of time there are a number of options available, each of which is suited to different needs and circumstances.

One thing to bear in mind is that if you are a homeowners and you are looking to take out finance over a shorter term you should avoid taking out a secured loan. This is because many secured loan companies will offer repayment terms that start at three years, and if you attempt to repay the loan any earlier than the term that you specify you could be hit with costly fees and charges, which can really bump up the cost of your borrowing. Therefore you should try and stick to more suitable options where you will not be penalized for early repayment. This includes:

• 0% purchase credit cards
• Payday loans
• Unsecured loans taken over a shorter period

0% purchase credit cards

Many people wish to take out finance to fund purchases at a special time, such as when going on holiday or at Christmas time. If you need to take out finance to fund purchases for a specified period then a 0% purchase credit card could be the answer. These cards offer a specified interest free period, which means that you can make purchases on the card and then spread the repayments over the specified period without having to pay any interest. The interest free periods offered can vary from one card provider to another, and some lenders will offer twelve months or more of interest free credit, giving you plenty of time to repay your balance. If, however, you wish to clear the balance earlier you can do so without penalty.

Payday loans

A payday loan is a very short term loan that is available to those with bad credit as well as those with good credit. There are no credit checks available with this type of loan, and the money is often made available on the same day depending on which lender you opt for. You can take out a payday loan online as well as in person, and the amount that you can vary will depend on your financial status and earnings, as well as on the lender – most offer between £100 and £1000.

The payday loan is a loan designed to tide you over until payday, and you will normally have to repay the loan within one month of taking it out, although some lenders will allow you roll over repayment to the next month providing you pay the required fees. The interest charged on these loans is high in terms of APR, but as they are short term loans for relatively small amounts it usually works out to a set fee of around £10 per £100 borrowed. Many people turn to payday loans to pay for unexpected emergencies or bills, particularly in cases where the borrower is unable to get access to a credit card or has no available funds on their credit card.

Unsecured loans

If you want to take out finance over a relatively short period and you have good credit then an unsecured loan could be the answer. Unsecured loans are generally available over a set term of between one and five years, although some lenders offer longer repayment terms of seven or ten years. However, unlike secured loans you will not usually be penalized for repaying the loan early, and therefore there is more flexibility available with unsecured loans. Depending on your financial and employment status you can usually borrow up to £25,000, but you will need to have a good credit rating to get one of these loans.

Unsecured loans are available from a number of lenders, such as high street banks and Internet lenders, and the rate of interest charged can vary from one lender to another. The recent credit crunch in the UK has seen the interest rates on some personal loans shoot up, so therefore it is advisable to compare a number of loans before you make your decision rather than assuming that your own bank is certain to offer the best rate.