Short-Term Loans: What to watch out for?

Using a short-term loan can be an effective way to overcome a financial emergency. With so many people living paycheck to paycheck – even 18% of people earning over $100,000 – lots of households are just one car breakdown or a leaking washing machine away from needing a short-term loan.

But if this is your first time using a short-term loan, you might be a little worried. How do you know which companies to trust and what to watch out for? This quick and easy guide is for people seeking their first loan and the pitfalls to avoid. 

Watch Out for Unregulated Lenders

The first and most important thing to watch out for is unregulated and illegal loan providers. You should only use a loan provider that has been authorised to operate within your country.

Even short term loans should adequately assess your suitability to repay and prevent you from getting into debts, the kind offered by Wonga for example. Who are on the published list of National Credit Regulators list of providers. You should be able to check and verify if a lender is authorised and regulated online, and while you are there, make sure to check the lender’s latest reviews.

Watch Out for Credit File Mistakes

Before you start researching loan providers and loans in detail, take the time to look at your credit file. It is estimated that 20% of people have an error on their credit file, which could result in a loan being rejected. You can access your credit file as part of a free trial on some websites, but remember to cancel your trial or you will have to pay.

Watch Out for Self-Destruction

Another common mistake to watch out for is applying everywhere once you realise you need cash. The anxiety and urgency to get money quickly can make you apply for different loans that you are suitable for. This is a mistake because applying for lots of credit in a short space of time can damage your credit score and stop you from being approved, or it can result in multiple approvals that you cannot afford to repay.

The better option is to research and compare short-term loans from regulated lenders and then apply for the one which is the best deal for you.

Watch Out for Advance Fee Loan Scams

Short-term loan seekers should watch out for advance fee scams offering you a low-interest loan. An advance fee loan scam is when someone approaches you online from a supposedly reputable creditor offering you a loan. The loan they offer will have an interest rate far better than the regulated market. All you have to do is pay an application fee upfront to secure this amazing loan. Of course, they disappear as soon as you pay the application fee because the loan company doesn’t really exist. If anyone approaches you for a loan online instead of you approaching the lender, break contact immediately and don’t get caught out.

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