All stats point to the fact that short term loans are the most popular loan types in the UK, which consequently indicates that they are exceptionally useful in a number of common scenarios. Going a little deeper into the details reveal why they are so popular and when they can be useful options to consider, in addition to certain cautionary facts that people should be well aware of before taking a short term loan.
Uses: Why are So Many People Taking Short Term Loans?
Although the reasons can differ, in accordance with Finder and other reliable web resources for infographics, the following can be held as sound information, as updated up to October 2019.
- About 53% of people taking short term loans use them for covering recurring costs such as utility bills, rent, and groceries
- Unexpected car repair expenses are cited as the reason by 10% of the borrowers
- Shopping is the third most common reason cited by roughly 7% of the borrowers
- 2% of the borrowers use the short term loans to pay off previous short term loans
- All other reasons combined account for the rest of the 28% borrowers
Usefulness: When Can It Be Considered Useful?
Short term loans from an authentic lender are ideal for meeting unexpected expenses, which can be anything really. Therefore, there is no practical limit to what they can be used for, but due to the low upper limits that these advances usually have, they are mostly unsuitable for heavy business-related purposes. That being said, there are a few considerations to be made here, which we will discuss in the next point.
Averages: How Much Do People Borrow?
Short term loans are, by default, small loans, so the average is around the £260 mark in the UK. It was also found that, on average, someone taking a short term loan is likely to take five more within the same year.
Apparently, low-income millennials between the ages of 25 to 30, who are also single/without children, are the most likely to take payday loans or the like to cover their expenses. As paying rent is a major reason behind taking short terms loans, tenants are more likely to take them than house owners.
Warnings: Missing Payments Can Get Very Expensive
There was a time when payday loans used to spiral out of control due to their uncapped interest rates, but ever since the cap was introduced in 2015, the cumulative interest rates have been somewhat controlled now.
Somewhat being the keyword, as a few missed payments are still enough for the interest on a short term loan to easily surpass even the total borrowed amount in no time, turning the interest + principle + fines/late fees into significant debt.
Keeping the payback period to a minimum and not missing any of the instalments is pretty much all it takes, so as long as the borrower is diligent, short terms loans can also be a great way to start or repair credit history.