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It is unwise to take out a short-term loan if you are unable to pay it back in full and on time. The consequences of paying the loan back in part, or late, can lead to disastrous interest and fees. While short-term loans are just that, short—between a week and a year—there are many other longer loan options. While you normally pay back loans when the lender says so, some may allow you to choose your repayment period. Either way, short-term loans have high interest rates, or large fees if you don’t pay the money back right away.

How it Works

Despite their expensive nature, there are limits on how much loan companies can charge you according to specialists at MoneyPug, a site used to compare short-term loans in the UK. A loan company can only charge you £24 for a loan of £100. However, if you don’t repay the loan and interest on time, you will be charged additional fees and interest on the amount you borrowed. In total, the company cannot charge you more than double what you originally borrowed.

There is also the option to have the company take out what you owe in recurring payments. Allowing the business to take out what you owe from your bank account. This can be helpful but disruptive—they may not tell you that you owe more in fees until you are charged for it. In addition, this carries the risk of bank overdraft, the inability to pay for essentials, and the possibility of getting stuck in the endless cycle of loans.

Interest, Fees, and the Loan Trap

When a customer has trouble paying for the loan they took out, the company may offer to extend it. Do not do this. Called a deferral or a rollover, this means they will renew the loan, leading to new interest and new fees. While in a moment of desperation renewing the loan may seem like the only option, you can find yourself trapped.

When you’re late to repay a loan, you are charged fees. There is still interest on your original amount borrowed and interest on the fees charged. This means that when you renew the loan, you will have to pay back what you are renewing and all of the fees you have accrued. If you absolutely have to take out a loan, repay the money as soon as you can to avoid fees.

Alternatives

Since short-term loans can be expensive, you should weigh your options before you take it out. First, it is wise to borrow from family and friends. You can make a payment plan to get the money back to them and put the agreement in writing if either of you feel nervous about the repayment process. Asking your employer for an advance on your salary is another way to tide you over and avoid loans. This may be uncomfortable, it is better than throwing money in the trash.

Even using a credit card is better than paying for high-interest loans. Borrowing from a credit union is far better than that, with modest interest. You can also be approved to overdraft from your bank account for a certain amount by paying a fee.

Other loans, both secure and unsecure, are other options. Whether you take out a low interest peer to peer loan, have a third-party to vouch for you in a guarantor loan, or need to rely on assets to get a secured loan, if you don’t need money fast longer termed loans may be a good choice for you.

There is no reason you should go straight to taking out a high-interest short-term loan. Not only are there other options, nearly all of them are more financially viable than excessive fees and interest. If you are forced to take one out, make sure the rates are as low as you can get.