Guide to Make the Most of the Short Term Credit Alternatives Available

Credit refers to a contractual agreement in which a borrower receives something of value now and agrees to repay the lender at some later date. An apparent expense attached to credit is the interest. It is the most crucial factor in determining the credit alternative sought after. Another imperative determinant is the reason for borrowing the funds. If the funds won’t yield a return, then the borrower must be very careful and analyze every minute detail before availing credit as it would lead to an additional burden on him in the form of interest and repayment obligations.

Some Popular Short Term Credit Alternatives

Pay day loan is a short term, unsecured form of credit, wherein a person borrows some money and agrees to pay it back on his payday or the day on which his next paycheck is due. These loans carry a very high interest rate and prove to be very expensive if a default occurs in making payment. This source is preferred when there is a sudden requirement of funds due to unforeseen circumstances and the borrower is in a position to pay back it within a very short period, generally four weeks.

Credit Card is a form of plastic money issued by a financial institution allowing the card holder to avail credit up to a certain limit, as and when required. The interest rates are pretty high and the borrower is required to make a minimum monthly payment, defaulting on which leads to late payment and additional interest charges. This source is preferred when the borrower needs to bear some obligatory expenses on a regular basis and there is a shortage in his budget.

Personal loan is a short term, unsecured loan taken to meet one’s personal expenses. This also carries a high rate of interest but comparatively lesser than the two mentioned above. This can take two forms wherein either the borrower pays interest for a period of time and then repays the principal amount at once or the principal amount is paid in installments along with regular payment of interest. This source is preferred when a comparatively higher amount is required at once. Also, the borrower should have a good credit score.

Choosing the Best Alternative

  • Compare the cost and tenures of the credit sources available.

  • Determine if you would be able to meet interest and repayment obligations on time so as to avert further charges.

  • Decide the amount of credit to be availed as per your need and paying capacity.

  • Don’t be anxious when you see an opportunity of availing credit. Be patient and careful and scrutinize the terms and conditions properly.

It is essential to understand that credit should be the last resort because if you fail to pay your debts, then you will have an additional financial burden on your shoulders. It will diminish your credit score, making it impossible to avail further credit even if you are struck in a crisis situation. The best method to avoid shortage of funds during a financial crunch is saving them beforehand out of your earnings and keeping a check on those desires which lead to wastage of money.