Over the last decade or so, the short-term loan industry has grown rapidly.
While there are many different reasons why people apply for short-term credit, usually, they all have one thing in common: they need money fast. Applications for short-term loans, also known as ‘payday loans’ and ‘instant loans’, can often be completed online in as little as five minutes. Some lenders offer instant approval and money can sometimes be in a successful applicant’s bank account on the same day as their application.
In this article, we will take a closer look at six of the biggest reasons why people apply for short-term credit.
- Repairing a broken down car
An unexpected expense, such as having to repair a car, is one of the top reasons why people apply for short-term credit.
Whether it is to take the children to school or get ourselves and our partner to work, many of us need our car on a daily basis. If your car breaks down, not paying for the repairs may simply not be an option if you need your car to earn money.
If you do not have the finances to pay for your car to be fixed, a short-term loan may be the quickest way to get the money necessary to have the repairs carried out.
- Paying an unexpected bill
Putting money aside each month as part of your budget to pay for any unforeseen expenses is always advisable.
If money is tight, it is not always possible to do this.
People sometimes apply for short-term credit to pay a bill that they simply had not budgeted for. They could need cash to pay for a leak in the roof or damage to an essential household appliance, such as a boiler, that is not covered by their insurance.
- Funding studies
Students have a reputation as always being short of cash. In 2015, the Guardian reported that around 2% of undergraduate students had used payday loans during the previous year.
- Home improvements
Some people are turning to short-term credit to fund improvements to their home.
Using loans to carry out home improvements is not a new thing. According to the Telegraph, more people are choosing to carry out work on their home, rather than move house.
Whilst some people release equity from their house to fund the improvements, others take out loans.
- A special occasion
Paying for a special occasion, such as a birthday or a christening, is another reason people cite for applying for short-term loans.
On a similar note, funding a family holiday is also a reason why people take out short-term credit.
- To pay bills
Many people say that they apply for short-term credit simply to pay bills.
Short-term credit can be useful, especially in emergencies, as it is possible to apply for cash quickly. However, it is important to ensure that you only ever borrow what you can comfortably afford to repay, in order to avoid ending up in what is known as a ‘debt spiral’. This can occur when you take out loans to cover existing financial commitments.
The reasons why people apply for short-term credit can vary significantly, from paying unexpected bills to funding home improvements. If you need to take out a loan, do your research about what type of loan would be right for you and your circumstances.