Saving money might be an Achilles heel for most in this economy as rising prices continue to impact how finances are being managed day-to-day. As a result, more often than not, you may find yourself dealing with a cash crunch. While it’s not impossible to manage tight financial situations, it requires a fair bit of finesse and financial prudence. This involves considering your borrowing options, how much credit you can afford to take and how you plan for loan repayments.
Short-term loans can often be a viable credit option in these times, as they are disbursed speedily and generally have minimal paperwork involved. This also makes them particularly advantageous in emergencies where you don’t have the luxury of time to scout for suitable credit options. That said, these can come with high interest rates, and any hard credit checks made by lenders may negatively impact your credit score.
That’s why we bring you a few smart alternatives to short term loans that you can consider.
1. Ethical Loans
Typically, traditional lenders who are in the business of short-term loans issue these with high-interest rates. And while they are flexible and disbursed quickly, this can be problematic for those already dealing with debt or who have a bad credit score. This is where your choice of lender makes a difference.
When you consider borrowing from an ethical lender, you bring down your borrowing risks considerably. This is because, unlike other short-term loan options, they are known to offer ethical credit options that are suitable for you.
Not only that, but ethical loans by Salad also follow a different algorithm to calculate your creditworthiness and look beyond your credit score. This can be an important consideration for those with bad credit who still want to access loans during an emergency.
2. Family and Friends to the Rescue
It can be challenging to find interest-free short-term borrowing options quickly, especially in an emergency. Having a good network of friends or a supportive family can be incredibly helpful in times like these. There’s no harm in asking them for help if you’re in a dire financial situation. With a few helpful pointers in mind, this may be a better alternative to a traditional short-term loan.
Borrowing from family or friends shouldn’t be an excuse for a casual approach. This means that if they decide to help you out, you should have it written down with clearly agreed terms of repayment. Doing this can be reassuring for them and minimise any potential misunderstandings that may arise.
Also, make sure to follow through with your loan repayment schedule just as you would if it were a short-term loan from a bank. By making timely repayments, you build trust with your family and friends and assure them that you aren’t taking their help for granted.
3. Paycheck Advances
Payday loans might seem like a tempting short-term credit solution worth exploring if you are employed. However, like many other short-term loans, these are often accompanied by high interest rates. A smart alternative to consider would be a paycheck advance.
Some employers have these arrangements as part of formal employment benefits. Paycheck advances are not loans and therefore do not have any interest rates. This is simply your employer giving you a portion of your paycheck ahead of your scheduled payday.
When compared to traditional short-term loan options, this can be a good way to meet small fund needs. Since this is your earned salary or wages, it’s not exactly a credit option and doesn’t have any strings attached. This makes it a hassle-free, and sometimes interest-free, fund option you can access immediately.
4. Peer-to-peer Lending
If you need funds for your business and are struggling financially to access a suitable short-term loan, consider peer-to-peer lending. Lending platforms offering this option are regulated by the Financial Conduct Authority (FCA). This means you can borrow without worrying about risks.
This is a low-cost borrowing option that can help you or your business. You’d be dealing directly with lenders who offer competitive rates and flexible terms. Most of these lending platforms will match you to potential lenders or offline brokers based on a variety of factors. This includes your loan amount, how your business intends to use it and how much time you need to repay.
Your lender could be a group of people or a single lender, where the lending platform simply acts as an intermediary to connect. All you need to do is answer a few questions regarding your business and provide relevant paperwork. Once your loan is approved, you can access your funds in a matter of days.
Conclusion
Short-term loans can be helpful in certain situations, but it’s always better to consider other alternatives before committing to them. These alternative credit options are easily accessible, come with lower interest rates and are pocket-friendly.
This makes them an ideal borrowing option for people with varied credit scores and reduces borrowing risks significantly.
Consider these smart alternatives to navigate your finances better.