Accessing Savings vs. Applying for Short Term Loans in the UK

Most people have a threshold for expenses, which many call a budget. Actually, it is not a budget but just a capping of how much you can spend given your income and financial liabilities. The capping does get breached every now and then. There would always be sporadic and unforeseen expenses so it is not always possible to have a foolproof threshold. When you do breach the cap and end up spending much more than you should, you may ebb into financial strains. Some financial issues are short lived and they are manageable. Others are not. When you have an unmanageable financial problem, you need a solution. The solution to any problem that involves money is money itself. If you need some money, then you would either ask a friend or break your bank, you dispose a certain asset or you borrow some money from a lender. There is no dearth of short term loans in the UK. You can consider secured or unsecured loans. You can consider payday loans or some other kind of short term loans in the UK. Should you have some savings in your bank, must you use that to resolve your pressing financial issue or should you go for short term loans in the UK?

Applying for short term loans in the UK will require you to furnish all necessary documents proving your identity, employment or business and income. You may also have to report your credit score and the purpose of the loan. Eventually, you may or may not qualify for the chosen short term loans in the UK. The biggest disadvantage of short term loans in the UK as against using your own savings is the interest you would pay. Depending on the repayment term of the loan, rate of interest and loan amount, you may end up paying a few hundred or thousands in interest alone. Is that avoidable if you have savings and would it be wise to access your savings in times of financial turmoil?

If you don’t qualify for short term loans in the UK, then you have to break your bank. Else, you can always avoid accessing your savings. While you would be paying interests against your short term loans in the UK, you would be compelled to repay and your savings will remain untouched. Many people who access their savings during minor or substantive financial problems don’t replenish their savings. In the process, the savings get exhausted, the financial problem becomes a thing of the past and one is not prepared for another problem, especially if it is more serious.

There are of course exceptions in both scenarios. Many people are stringent with their saving strategy. They maintain a rainy day fund and would always replenish it. When there is such a measured approach, accessing savings is more desirable than applying for short term loans in the UK. In other cases, using some of the saved money and taking out a loan for the rest of the amount you need is a wiser move.