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When to (and when not to) use a cash loan

Sooner or later, everyone gets caught short. Sometimes it's because of car trouble. Other times it's an unforeseen medical expense. It could simply be a bill you hadn't accounted for. It sucks, but it happens.

The worst part about these kinds of expenses? They usually need to be dealt with fast. You need your car repaired so you can drive to work in the morning. You need that decayed tooth out so you stop the throbbing pain. You need to pay that bill before your insurance expires.

It's these kinds of one-off, surprise expenses (which need to be resolved quickly) that a cash loan may be suitable for. Here's what you should know before you apply for a cash loan, because whilst they often provide a quick fix, they may not actually be the right fix.

What is a short term cash loan?
A cash loan (also known as a payday loan) is a short term and typically small-sized finance product designed to provide you with additional cash for when and where you need it.

Cash loans differ from other forms of credits, such as credit cards and personal loans, in that they do not incur interest, lenders instead charge set loan fees.
When compared to other loans, cash loans, are generally faster to apply for and faster to get approved. They also require less documentation because the loan amounts are smaller (less than $2,000).

Price vs. speed
Cash loans are one of the faster forms of finance. As stated above, in many cases, they are quicker to arrange and easier to obtain than other finance options.
The price you pay for convenience? Well, it's price. You'll likely end up paying more for a cash loan than you would for other forms of credit, such as credit cards or personal loans.

While there is no interest paid, there are fees, typically a setup fee of 20% of the capital (amount borrowed) and a monthly fee of 4% of the principal.
For example, on a $1000 cash loan repaid over 3 months you would pay $200 in setup fees and $120 in monthly fees, resulting in $320 paid in fees overall.

When might you use a cash loan?

Cash loans, strictly speaking, can be used for just about anything. That means last minute bills, moving costs, or just a night out with your friends. Provided you meet the lending criteria, the money could be yours, to use at your discretion.

However, just because you can spend the money on anything you like, does not mean you should. There are definitely instances which are more appropriate for cash loans than others.
These instances include:
• Emergency car repairs
• Broken home appliances
• Costs associated with medical care

These kinds of unexpected bills are ideally suited to payday loans because they are (usually) one-off expenses, so you do not run the risk of 'doubling up' on debt, or using debt to pay recurring expenses.

Things to remember if you decide to use a cash loan

It's important to follow some simple guidelines to avoid potential financial difficulties. The following rules apply to cash loans, as well as credit in general.

• Do not borrow more than you think you can repay.
• Set a budget, and where possible, stick to it.
• Avoid taking on debt to cover existing debts.
• Where possible, conclude existing debts before taking on more.

If, despite your precautions, you find yourself in financial difficulty, there are steps you can take. The first of which should be to contact your lender. They may be able to help you to reschedule your loan to make it more manageable.

When shouldn't you use a cash loan?
Cash loans are designed to cover temporary shortfalls in funds. They're also known as 'payday loans' because they're typically paid back on the following payday or paydays.

They're designed to give you fast access to a small cash loan, while also providing a manageable and easy-to-follow repayment schedule that fits in with your income and regular expenses.

It is, therefore, not advisable to use cash loans to cover long-term and recurring expenses, such as rent, utility bills and membership fees. Should you have difficult paying these sorts of bills, it is better to seek out a more permanent solution.

In closing
A cash loan can be a good option for when you need funds fast in order to cover a temporary shortfall in funds. They can even be used to purchase luxury items in some situations.

They should not, however, be used to cover ongoing or recurring costs, as these expenses generally require a more long-term solution.

Guest post provided by Hugh Steele from Digital360