Can Short Term Loans Affect Your Credit Score?
Short term loans have become a popular choice for people facing unexpected financial challenges. They offer quick access to cash to cover emergencies like car repairs or medical bills. However, it’s essential to understand the potential impact on your credit score and the risks involved before applying through a lender or a broker.
Do They Impact Your Credit Score?
One of the primary concerns when considering a short term loan is how it might affect your credit score. While it’s true that these loans can influence your score, the extent of the impact depends on several factors. Lenders typically conduct a hard credit check when assessing your loan application. This inquiry is recorded on your credit report and can slightly lower your score. However, the effect is usually temporary. Your repayment history is another crucial factor. Making timely payments can positively impact your credit score, demonstrating your responsible borrowing habits. Conversely, missed or late payments can significantly damage your creditworthiness. Applying for multiple short term loans within a short period of time can also negatively affect your credit score. Lenders may perceive this as a sign of financial instability.
Understanding Short Term Loans
Short-term loans are designed to provide financial relief for a short period. They typically involve borrowing a small amount of money, usually between £500 and £1,000, and repaying it within a few months. While they’re convenient, it’s essential to use them responsibly. When considering a short term loan, it’s important to ensure you can comfortably afford the repayments without compromising your ability to meet other financial obligations. Borrowing more than you can repay can lead to a debt cycle that is difficult to escape. Here at PMLoans, we offer loans up to £1,500, which can be repaid over 12-month periods, giving individuals the time to budget and account for each payment.
The Risks Involved
Short term loans come with inherent risks. One of the most significant is the potential to get trapped in a cycle of debt. If you rely on these loans to cover regular expenses, you may find yourself borrowing repeatedly to make ends meet. This can lead to a downward spiral, making it increasingly difficult to manage your finances.
Alternatives to Short Term Loans
As a lender, we would always want individuals to opt for a short term loan alternative instead of jumping straight into borrowing. This is due to the increased risk of loans. However, a lot of the time, individuals are unaware of what other options they have. So, we have compiled a list of common options you may be able to consider:
- Borrowing from friends or family
- Cutting back on other costs
- Selling things you own
- Speaking with your existing lender if you think you can’t repay them on time
It is important to have savings or an emergency fund since we always advise spending your funds before taking out a loan. If getting a loan is your only choice, though, you might want to attempt starting a fund going forward for the future to avoid any risks brought by borrowing credit. For more information on short term loans, click here.