What's Your Best Credit Option in 2023?By David Thompson, UniversityHerald Reporter
Always a controversial subject, the quick loan industry has evolved at a break beck pace over recent years, highlighting the ever present necessity for this notorious digital product. With tighter regulations limiting the maximum interest rates, charges, roll-overs, and fees lenders can levy against borrowers.
However, while this type of credit might be a fast and seemingly straightforward way to borrow, and even with the plethora of reforms that have taken place recently...are they actually a safe option in an inflationary economy? Is there always a better option for you? Keep reading to find out.
Originally, quick loans referred to payday loans intended for short-term use to tide borrowers over between paychecks. As lending appetites change, the term now cover a much wider variety of products.
Let's look at some of the pros and cons, when quick credit might be a perfect option - and when it could potentially be the opposite.
Advantages of Quick Loans in the Current Financial Landscape
Where interest rates are rising and markets are fairly uncertain, many banks and high-street lenders have effectively closed their doors on new clients or are restricting lending approval to pre-existing customers.
This trend is demonstrated in a report by LexisNexis, which found that applications for short-term loans in the UK rose 90% between April and June last year, coupled with a 70% surge in the number of people reliant on short-term loans to cover other debt payments.
The positive, as a borrower in need of a loan to cover emergencies such as a car break-down or broken boiler, is that a quick loan:
•Provides easy accessibility, with decisions available in a few minutes in most cases, rather than taking several weeks to secure.
I•t is generally easier to qualify for, with flexible acceptance criteria that are more inclusive than the policies linked with longer-term products such as mortgages.
•Can often accept applicants without a perfect credit score since the lender is primarily interested in checking whether the borrower can repay the loan in a short timeframe.
•Is unsecured, without putting a home or other assets at risk. Secured lending is cheaper but carries the prospect of having a property repossessed if the lender defaults.
There is little doubt that quick loans can provide enormous relief for families and individuals with a sudden gap in their cash flow, and provided applicants use accredited, regulated and established lenders, they are safeguarded by regulatory controls and consumer protections.
We recommend reading South African lender Wonga's guide to quick online credit available here. In a refreshingly transparent publication the Wonga website lists a series of FAQs that in no-nonsense detail how the digital quick loan can affect your credit rating, alongside insights into the outcomes if you fall behind with your repayments, plus lots of other bonus content including tips on how to improve your chances of a successful application.
Drawbacks of Using Quick Loans to Supplement Your Finances
One of the specific challenges in the existing economy is that financial pressures seem to be cropping up everywhere - the Office for National Statistics states that almost half of all adults were unable to keep pace with energy bills in the four months to January 2023.
That said, there are possible pitfalls to be aware of before you submit a quick loan application:
•Interest charges are inevitably higher than for a secured, longer-term repayment plan.
•Borrowing more to repay existing debt is rarely a viable tactic because the additional costs of interest will make it harder to pay back.
•If you opt for a payday loan, it could reflect badly on your credit score. Mortgage lenders are particularly averse to accepting applicants with payday loan history, so this may be a consideration if you expect to purchase a home in the near future.
The key takeaway is always to make sure you understand the impacts of using a quick loan and have complete knowledge about what the implications might be if you can't repay the debt or end up taking on more and more loans to cover general living costs.