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Should I get a short-term loan?

Why do people get short term loans and should I, myself, get one? 

Kiwis get short term personal loans for various reasons such as financing a new car, renovating their house, putting deposits down for their wedding and more. 

Watch Instead: Should I get a short term loan?

The Pros

Short term loans are often incredibly easy to attain (same business day for some) and the approval rate is high. You can also often get these without any security given to the loan company, which, all in all, makes them very attractive to people.

The Cons

The maths on these personal loans doesn’t add up. Sure, they help you out in the short term, but in the long term they’re designed to make the lender a lot more money off the loan given. Their interest rates and incredibly high, some as high as 15%-20%, and the longer you take to pay this off, the more money the loan brokers are making in interest.

Short term loans trick your brain into thinking that there’s an incredibly easy way to get something that you really want in the moment, but over the long term it can really sting your finances and take years and years to pay off. So what’s a good alternative?

Here are our top five alternatives to short term personal loans.  

         1. Just say no.

If you’re planning on using the money towards a new car, a new TV or another type of material good to replace something you already have that’s fully functional, say NO and put that option out of your mind. It’s not a priority, it’s something that you want, not something that you need. 

        2. Save up and buy it with your own money, no interest repayments required! 

The second alternative is to cut back on other spending so then you can save up money and then buy what it is that you really want. Making small sacrifices in other areas will make you appreciate it so much more when you finally go to purchase it. Is it too expensive to save up for? This confirms you’re living outside of your means and that getting this loan is a bad idea. 

       3. Get a mortgage top up

If you have a mortgage, then you can usually top this up with the amount of money you need whilst getting a much lower interest rate than you would for a short-term personal loan. Getting a top up in your mortgage will help bridge the gap for the finances that you need for what you’re looking to buy. CAUTION: This is not something that you should make a habit of and should only use in the case of an emergency or where the spending will be productive i.e. house renos.

Man staring into the jaws of a loan shark

         4. Have an emergency fund 

We bang on about having an emergency fund a lot, and the great thing is that it can really save you when unexpected bills, repairs, medical costs and maintenance come up. it’s far better to pull money from your own savings than to sign away for a personal loan. 

        5. Create a spending plan.  

The last alternative is to create a spending plan. Many people look to short term personal loans because they actually don’t have a plan for their spending. If something comes up that you didn’t anticipate for, perhaps you should have some money set aside for situations like this. Remember, it’s never too late to start. You can download our free annual spending plan here.


If you’d like some information on how to top up your mortgage or how to get out of short-term debt, book a 15-minute Financial Coaching chat with us so you can get some solutions for your situation this week. 

Keep in mind this article is providing general information and not individual financial advice.