Cash loans and are fast and convenient option for those who need funds fast, however, they shouldn't be used as a one-size-fits-all solution for your short-term cash flow problems. There are a range of alternatives for cash loans available on the market, so it's important to analyse the different choices in order to find the perfect solution for you and your current situation.
Fortunately, we've done the hard work for you and found the main substitutes for cash loans; providing you with all the information you need to determine the ideal option for you to get your finances back on track. Read on to learn more.
What are cash loans?
If you're new to the world of loans, you may be unaware of the term 'cash loans' and what it actually means. In summary, cash loans are sums of money that are sent straight to your bank account from your lender, or given to you in person in cash. Similarly to other types of loans, you can apply online, over the phone or in a bank branch, and the lender or bank will assess your application and make a decision on whether to lend to you or not.
If your application is accepted, most lenders will send the money straight to your bank account within a matter of hours or minutes, whereas others may take a number of days.
Who would use a cash loan?
More often than not, cash loans are used by people struggling with short-term finance issues. Finance problems can be caused by anything from receiving unexpected bills to emergency hospital payments, and these issues can arise at any time. Therefore, cash loans are a useful option to help those in a pinch get the money they need as quickly as possible.
Once the cash is sent to your bank account you can spend the money as you wish, which is one of the reasons why cash loans are so popular. As well as this, they are often unsecured rather than secured. This means that your loan is not secured against any significant assets such as your car or your house, therefore this is seen as a less 'risky' method of borrowing.
There are a number of alternative options for borrowing if you find that cash loans are not a suitable solution for you. Here are the main alternatives:
Borrowing from family and friends
Due to their convenience, cash loans often come with high interest rates. If you're already in a difficult financial position and you can't keep up with your cash loan repayments, you could end up in a debt spiral which could significantly worsen your credit score and finances.
You may be reluctant to borrow from family and friends, however, this is always a better option than taking out a loan as it eliminates the risks associated with cash loans, and you're likely to pay lower interest than you would if you were to take out a loan with a bank.
Credit cards are also a viable option if you're looking for a short-term financial solution. Credit cards typically have lower interest rates than loans, therefore you can benefit from lower monthly repayments. As well as this, many credit cards have interest-free periods of at least 57 days, therefore you can borrow money for free so long as you keep up with your repayments.
It's important to remember that credit cards can have hidden costs such as late payment fees and withdrawal fees, so in order to keep the costs down make sure you pay as much as you can each month.
As mentioned above, the majority of cash loans are unsecured, therefore another option would be to apply for a secured loan.
Secured loans are secured against significant assets such as your car or your house. The asset is used as collateral, and if you can't keep up with your payments the asset will be sold to cover the amount owed.
This is seen as a risky option for borrowers as you risk losing important possessions, however, as secured loans are less risky for lenders, interest rates tend to be lower than that of other loan types.
How to Avoid the Potential Pitfalls of Cash Loans
If the alternatives don't appeal to you and you're ready to apply for a cash loan, firstly, you should learn how to avoid the potential pitfalls of cash loans. When used irresponsibly, cash loans could leave you with significant debt and financial problems, however, with our top tips you can avoid these common pitfalls and use your loan to improve your financial situation.
Only borrow what you can afford to repay
This rule applies to all methods of borrowing. In order to maintain good financial health, it's crucial that you only borrow what you can afford to repay with interest on top.
Cash loans normally have a fixed repayment period, whereby you make regular monthly payments until your debt is cleared. Before making any applications, calculate whether you will be able to keep up with these monthly repayments as well as your other essential bills, to determine whether you can afford to take out a loan.
If it looks like your loan repayments are going to eat into your monthly budget, it may be worth exploring cheaper methods of borrowing.
Protect your credit score
Making multiple credit applications within a short period of time can severely impact your credit score. Therefore, if you're looking for your ideal cash loan, it's best to only apply for one at a time and wait at least a month or two before applications.
This will help you to avoid worsening your credit score, which can give you a better chance of being accepted for credit in the future.
Pay off debts with savings
It's always best to pay off your debts with savings rather than taking out another loan. This is because you'll have to pay interest on multiple debts and you could end up in a difficult financial situation in the long run.
Try budgeting and cutting down spending in order to reduce your current debts before you consider taking applying for additional funds.