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Financial misfortune can strike anyone at any time. In fact, it affects most people at some point in their lives, and when borrowing becomes a necessity, it makes sense to borrow sensibly.
There are a few options when it comes to long and short term lending. Long-term lending tends to be for people who have planned to borrow the money for something specific – like a car. Usually long-term borrowing is something the customer has been considering for a while and has had time to research. Short-term borrowing tends to be more urgent.
People who borrow for short-term problems usually opt for this type of borrowing to get them out of a bind. For example, if their car needs repairing or their washing machine suddenly conks out but they have no rainy day fund to fall back on.
Responsible Short-Term Borrowing
This article will give you practical advice on how to borrow sensibly when it comes to the most popular short-term borrowing methods.
Borrowing from Friends & Family
Borrowing from friends and family might seem like the simplest option, but it does come with some risks. It’s easy to fall out, when money enters a relationship.
If you’re going to borrow money from someone close to you, there are a few things you should do first. It’s important to check the time frame in which they are expecting to be paid back (and whether they want a lump sum or instalments). They may even have looked at something like this sample promissory note for lending money to friend and drawn up one for you to sign. Just because you’re close to them, doesn’t mean they shouldn’t charge interest, so double check they don’t want a small amount of interest to make up for their money not being in a savings account.
Always pay back friends and family when you have agreed to. If you repay your loan late, it will likely cause conflict in the relationship, so be realistic about when you can pay your friendly lender back.
Before you take the money, double check you can afford to repay it in the time you’ve promised. If you can afford to pay them back quicker, that might be the best option. Don’t borrow from someone if it’ll put them in financial difficulty.
Borrowing from a Regulated Lender
When borrowing from an online service, it’s important to only borrow what you need so that you don’t get trapped in a debt cycle. Places like polarcredit.co.uk allow you to borrow only what you need, starting at £25! This means you’re not stuck borrowing a higher amount and accruing interest on it than necessary.
Polar credit also offers significantly lower interest rates than those infamous payday loans companies. It’s always best to shop around for interest rates when it comes to borrowing, a small amount of money could end up costing you a lot if you don’t. They also offer flexible repayment options, which makes it easier to keep up with payments. If you use a credit product like this responsibly, your credit score is likely to improve as it shows you are sensible with your finances.
This type of credit product means access to funds can be really quick, so it can be helpful to get you out of a bind.
Borrowing When You’re on Benefits
Borrowing when you’re on benefits can be difficult. It’s likely you’re already working to a tight budget, meaning finding the money for repayment can be tricky. If you’re on certain types of benefits and need the money for a specific reason such as household items, or costs linked to getting a new job, the government might be able to help you out with a budgeting loan.
This type of loan is assessed on an individual basis and are interest free. The loan needs to be paid back within two years, and the repayments are taken directly from your benefits based on what you can afford.
Whichever option you take, it’s important you factor repayments into your budget. Borrowing sensibly is about ensuring you can repay the loan without leaving yourself short.