There are many situations in which you might find yourself short of cash. Depending on your circumstances, this could cause a minor inconvenience or a major problem.

If you find yourself in a situation like this, knowing what your options are can help you find a solution as quickly as possible. Getting a short term loan could be a suitable solution.

With that in mind, here is an overview of short term loans and what you need to know about them.

What are short term loans?

Small Amount Credit Contracts (SACC) are a finance product that is designed to give customers fast access to cash. They are often used when a person has a large, unexpected expense and only needs the extra cash until their next payday.

As with all finance products, it is essential that you know and understand what you are getting as well as what your options are.

Advantages:

The biggest advantage of short term loans is that they tend to be much faster than other forms of credit. This allows customers to resolve the situation which they need the loan for as quickly as possible.

Disadvantages:

The main disadvantage of short terms loans is that they tend to be more expensive than other types of finance. There can also be costly fees associated with late payments. Make sure you read and understand the fees associated with any credit product before you apply.

When should you use them?

The most appropriate time to use a short term loan is for an expense that is urgent and unexpected as well as outside of your regular budget.

Applying for a new credit card or an increased credit limit on an existing card can take a long time, often up to 10 business days. If you need to pay for something like emergency car repairs, replacing broken household appliances, medical treatment, or to cover an unexpected business expense, a short term loan can be suitable option.

Ideally, everyone should budget for unexpected expenses and have emergency savings. However, this is not possible for all people in all situations and short term loans can be a suitable alternative when used appropriately.

When shouldn’t you use them

Simply put, it is best not to use short term loans for purchases that are not essential or urgent. It makes more financial sense to wait until your next payday or save up for non-essential expenses.

Another area to avoid is reoccurring expenses such as rent, utility bills, or car payments. Unless your financial circumstances are going to improve in the near future, such as starting a new job, taking out a short term loan for a regular monthly expense can put you in worse financial hardship.

If you get in contact with your landlord or utility provider, you may be able to work out an alternative payment plan if you are in financial hardship and struggling to make your regular payments.

Responsible lending and borrowing

Finally, if you are going to take out a short term loan, it’s important to choose a reputable, licensed Small Amount Credit Contract lender. Check if the lender has flexible repayment options in case you encounter difficulty making repayments.

You also need to be completely honest on your loan application. Securing a loan based on inaccurate information could make your financial situation worse.