Some expenses may appear innocuous, but they can quickly drain your funds if you don’t plan ahead. 6-month loans can assist you in covering these costs. With a small loan, you could break down the expense of your venture into manageable monthly payments.

A 6-month loan can help you address a range of financial problems. It isn’t intended for a specific purpose like a mortgage or auto loan. But are 6-month loans a viable way to fund your ventures?

Learn more about how 6-month loans work through this article. What can you use a short-term 6-month loan for? Read on to know more.

What are 6-month loans?

Short-term loans that last for 6-months are colloquially known as 6-month loans. 6-month loans are a high-cost short-term credit solution that can help you cover some minor but urgent or unplanned expenses. These loans typically have higher interest rates than a personal loan. Although the rates you get mostly depend on your credit score.

Credit report

Your credit report is your financial scorecard. And your credit score is the metric that measures of your creditworthiness, which is pivotal to your application. Lenders check your credit score to assess their risk proposition when lending money to you. The lower the credit score, the higher may be the risk of default. Lenders set higher interest rates for low credit borrowers.

Lenders

Normally, lenders report your transaction history with them to credit bureaus regularly, based on which your credit file gets a regular update. Where timely payments can help you build your credit score, late repayments can severely damage it. Plus, the lender could get a CCJ against you, which stays on your credit report for six years and could cost you up to 350 points.

Payout Time

Since people usually borrow smaller loans over a 6-month period, the payout is quicker. Once the lender wire transfers your money, you may receive it within a matter of hours.

If used responsibly, a 6-month loan could be an excellent opportunity for you to build your credit score and climb up the credit ladder. Thus, to reap the benefits of a short-term loan, it is best to make timely repayments towards it.

How do 6-month loans work?

Here’s what the application process for 6-month loans entails:

• Loan amount: Crunching numbers to figure out an appropriate loan amount is crucial for the borrowing journey. Assessing your financial circumstances will help you understand your affordability better. It is always wiser to borrow an amount that you can easily afford to repay.
• Credit self-assessment: Pull up a free copy of your credit report from one of the credit bureaus to self-assess your financial standing. Self-assessing your credit rating before applying for credit gives you an idea of the offers you can expect from lenders. Knowing your score will buy you some time to either get a guarantor on board or work on your credit profile in general. Besides, a self-check helps you identify and dispute incorrect items of invalid enquiries on your profile.
• Online application: There are two ways of applying for 6-month loans – either with a lender or with a broker. The usual course of action for a lender would be to process your application internally. Online loan brokers like Loan Princess, on the contrary, allow you to explore offers from multiple lenders. Plus, loan brokers process your application with multiple lenders simultaneously. This saves your credit score from unnecessary damage. Such damage can be caused by individual credit checks, especially for borrowers with a below-average credit rating. Regardless of the platform that you choose, you should fill the application form meticulously. Errors in your applications can negatively impact the results.
• Loan comparison: This step is applicable when you apply with a loan broker. After lenders receive your application, their offers will be primarily based on a soft credit check on your credit profile. You can compare these offers based on interest rates and APRs.
• Offer acceptance: When you accept a lender’s offer, the respective lender will run a hard credit check into your credit profile. If approved, you can move on to complete the agreement formalities with your lender.
• Disbursal: Most lenders use wire transfers to send the funds to your bank account. Short terms loans usually have a faster disbursal rate than other credit products. The transfer may still take a few hours or days, depending on the banks involved. Although you are free to use the money at your convenience, you should use it responsibly. Repayment implications go hand in hand with credit. Repayment failures can negatively impact your credit score, diminishing your chances of acquiring credit in the future.

Tips for finding the best short term loans

Here are some helpful tips for you to find a suitable 6-month loan:

• Review the lender’s eligibility checklist and borrowing limit.
• Check the FCA’s Financial Services Register to assess the lender’s legitimacy and compliance.
• Make it a habit to check your credit report on a regular basis.
• Borrow only what you can afford.
• Check the average processing time for this lender.
• If you need a loan urgently, it is better to find a lender with a short disbursal time.
• Space out your applications to minimise credit score damage.
• Set a workable repayment schedule with your lender, even for short-term loans.
• If possible, use direct debit for your monthly instalments.
• Thoroughly check for hidden charges in your agreement.

Conclusion

6-month loans are a quick fix for a cash crunch, but they come with exorbitant interest rates. To avoid a credit score decline, you should manage your 6-month loan responsibly. Make timely repayments, just like any other credit solution.