Is a Short-Term Loan Worth Having?

There is a lot of talk about short term loans and whether they are something that should even be legal and also a lot of bad press about how people have taken out short term loans and got into trouble. However, there are people that have found them to be beneficial and so it is something that is very personal. The laws have changed to make them fairer as well and so this means that the charges are more reasonable. It is a loan though and all loans should be approached with caution and so you should consider a number of factors when you are deciding whether to take one out or not.

What is the loan for?

the first thing to consider is whether it is worth getting out a loan or not. Firstly, if you have savings then always use these before getting a loan as this will not cost you as much. You will lose the interest that you would earn on the savings but this will almost always be less than you will pay in interest on the loan. You also need to think about what you are buying with the loan and whether it is worth it. If you are buying something that you can wait for, perhaps that you can save up for or even that you can do without then it is usually best not to get the loan. This is because a loan is not only more expensive than buying something with your own money, but it can be stressful and potentially have a negative impact on your credit record. You may really need the money, perhaps to pay for bills that you must pay or else have services cut off or to cover rent or things that or you may just not be able to wait any longer for it.

How much will it cost?

It is really worth knowing how much the loan will cost you. Think about whether you are prepared to pay this much for the item. For example, if you are using the payday loan to pay for a new fridge, consider how much more it will cost you taking into account the cost of the loan and whether you would still be happy to pay that money for the fridge. You should find that any lender that you look at will be able to tell you how much you will repay in full for the loan, which will enable you to work out whether you think that it is worth it or not.

Is it good value for money?

It is worth thinking about whether you think that the loan will give you good value for money. Consider the cost of the loan and the difference it will make to you. If you are buying something which will only give you short term pleasure will it be worth it compared with something that will give you pleasure for longer. It may be that the loan is to cover bills and if this is the case then it may be necessary to pay them to avoid getting into serious trouble. But do consider whether there will be stress associated with the loan and how it easy it will be to manage the repayment. Also consider how you will manage on less money when you have to make the repayment.

Can you afford the repayments?

With a short term loan you often have to make one large repayment or just a few smaller ones. This means that you will have to manage to pay all of your bills as well as this repayment. This can be tricky if you tend not to have any spare money available each month. It may be that you will be able to cut back somewhere in order to free up some money and it is worth thinking about where that might be. You will need a plan to make sure that you can afford the payment or you may need to consider not having the loan at all as if you have to borrow more money in order to make the repayment then you could end up in all sorts of financial trouble.

Why Parents Should not Worry About Student Loans

If you are a parent and your children are considering going to university then the cost of university and student loans can be a very big worry. When grants were available and fees were covered for every student, the costs were not so much of a worry, but now that they all have to be paid for, it is a concern for many people. However, there can be a misunderstanding as to the way student loans actually work and this is partly to do with the way it is portrayed in the media as well as the way that the government talk about it. This means that you may end up being a lot more concerned than necessary. It is worth making sure that you understand the basics of the loans so that you can make sure that your concerns are warranted.

It does not work like a normal loan

It is easy to think that it is very much like a normal loan when it is not. Most countries with a student loan scheme similar to the one in the UK do not call it a loan as it works very differently. Firstly it does not have to be repaid in full in certain circumstances. After thirty years the loan will be written off by the lender regardless of how much is owed. Repayments are variable and determined by income which means that it is affordable for the students repaying it. Repayments only start once income reaches a certain levels and is calculated on a sliding scale which means that as income goes up, you will repay more but if income drops you will pay less or none. This means that if you take time out of work for any reason or move a lower paid job or part-time working, you will not have to worry about making these repayments. This is because they are taken out within the tax code and this will change depending on how much you earn and what your status of work is.

Three quarters of students pay no interest

You only have to start repaying the loan once your income reaches a certain level. Many students graduate and start a job which is below this income, they may have breaks in their career as well and this means that many of them will not be making loan repayments all the time at the maximum amount. This means that they will not end up paying the full amount. As you pay off the balance owed first and then the interest, you will not repay any interest unless you pay back the full amount or almost the full amount. This means that any increases in interest rate will not be relevant to many graduates as they never pay it back anyway.

Loan amount is determined by parental income

It is worth knowing that the amount that is lent is determined by parental income in the same way that student grants used to be. All students are entitled to get a loan to cover the course fees but the maintenance fees which cover living expenses are calculated based on parental income and so those with better off parents will get less money. This means that those students from better off families are likely to need to top up their loan perhaps by working or getting their parents to help them out.

Repayments are determined by student income

Although the amount you borrow is determined by parents income, it is the graduates that are expected to make the repayments through their tax code. As mentioned before the amount they repay is determined by their income. This means that once they reach a certain income level they will start making repayments through their tax code and this will continue until the loan is paid off or until thirty years have passed and the loan is written off.

Thinking about your children going into debt can be a worry, but this is very different to a normal loan. It only has to be repaid when it can be afforded and it gets written off after thirty years so it may not be repaid fully. Parents with higher incomes may have to top up the loan, but they should be able to afford it or there may be time for the students to work while they are studying in order to be able to afford everything that they need.