What is Short Term Borrowing
Short term borrowing is a form of short-term debt that can be used to fund short-term needs. Short term borrowing is more commonly known as a payday loan. I’m sure many of you have heard of payday loans before. They’ve often had a very bad rap in the press because they’ve been taken out by people who aren’t suitable candidates. Typically, it’s a small amount of money that is borrowed over a short period of time but it is paid back at a much higher rate of interest than a standard loan.
In an ideal world we’d never need to borrow money. But often in life there are things that we simply can’t save for or haven’t planned for. A mortgage is deemed an acceptable, expected debt. There aren’t many of us who can afford to pay for our home outright.
If we all had to wait to save the full amount before buying a home, then there would be very, very few home owners. Likewise, for university students, car owners, etc. In life we also encounter unexpected events, car repairs, redundancy, funeral costs, etc.
When it comes to big, planned expenditure there are many options of borrowing to choose from – mortgage, student loan, etc. It’s the unexpected events that are harder to plan for and you have less choice of acceptable forms of debt.
Why Not Just Get a Loan?
There are lots of low interest loans out there. Why not just get a low interest loan if you need money? If only it were that easy. For many people a low interest loan is not an option for them. Ironically people with a bad credit history cannot get a low interest loan. The only option to them is to access a high interest loan as they are seen as a high risk applicant. So someone who is already struggling with a poor credit history has no option but to take out a high interest debt which surely only perpetuates the debt cycle.
For some a short term (payday loan) might seem like their only option.
Is Short Term Borrowing Ever Worth It?
For many of us, the whole reason we need to borrow is because we do not have sufficient funds to buy the thing we need/want. Firstly you need to establish if the thing you are considering borrowing for, is worth it. Is it worth going into debt for?
Once that has been established, no matter what your circumstances are you must ask yourself – “If I borrow, can I afford to repay the debt?” If the answer is “No”, then a short term payday loan is not for you. Under no circumstances contemplate taking out a high interest debt that you will not be able to pay back. The debt will simply accumulate until it’s becomes insurmountable. There are no circumstances that warrant putting yourself in that position. If you find yourself in this position then please seek help.
However, if you are certain that you can pay back the debt quickly and you have no other option, then a short term borrowing payday loan might be an option to consider. Make sure you weigh up all your options and are fully aware of your obligations before taking out a payday loan.
The information in this article is not professional advice. I do not have a background in finance. I’m simply highlighting some points to consider before embarking on taking on debt. If debt is effecting your life please seek help.