For most people, the word “loan” makes them think of a mortgage, a car loan – something substantial over years. Small loans are entirely different. Small loans are for those awkward instances when something is out of budget when an emergency arises, but it doesn’t require £1,000 hanging over your head for five years.

What’s complicated isn’t acquiring these loans. They’re ten a penny these days. What’s complicated is figuring out whether borrowing is really going to do more harm than good.

When It Makes Sense

Let’s be real; people don’t give small loans a great reputation, and a lot of the time, it’s deserved. People use them badly. But there are times when the numbers add up.

Your car needs to be repaired, and it’s £800. You cannot get to work without that car, and a fortnight of cabs is going to run you close to £300, maybe even more. A small loan with interest totalling £50 doesn’t sound so bad. You’re not being irresponsible; you’re saving money in the long run.

Your £500 rent payment is due on Tuesday, but you can finish your course by Thursday if you pay £250. So, you’re waiting for payday next week and end up paying £500 for that course but could have used a small loan over the week for a small fee instead. There’s a time-sensitive issue here.

The common theme is the unfortunate occurrence that if you don’t have the money at the time, it could cost you more than borrowing it would. That’s your red flag to move forward with a small loan.

What Costs Less

People like to compare small loans with alternatives that don’t seem like they’d cost any money. For example, banks charge overdraft fees without a small loan application required. Have you seen what the banks charge now? Sometimes, even a small loan can be cheaper!

Credit cards are another alternative. Sure, if you pay them off right away, there’s no interest accrued, but reality check: how often does that happen? You let the balance sit there for a month then say you’ll pay it off next month, but by then something else comes up. You start needing gas or groceries and never pay that interest back until you’re paying way more than a small fixed-interest loan would have cost.

Borrowing from family implies no interest; however, when the awkward black sheep comes up at Christmas because you owe them money still, maybe the interest is worth it while keeping money out of personal relationships.

The Timeliness Factor

Standard institutional loans take forever to procure. That’s fine if you’re planning ahead of time for something, but if your boiler breaks in January or your car needs immediate repairing to get to work this month, waiting for approval doesn’t help much.

Small loans in today’s world bridge that gap. It takes about ten minutes to apply for one, with approval going through the same day or within twenty-four hours. For true emergencies, it’s about speed!

But don’t use speed as your only rationale. If you’ve got time to apply and review other options and make choices, then do it! Speed matters – for emergencies – because life happens unexpectedly.

What It Costs

For most people who see “repayments” on a loan over whatever period frightens them, and they don’t give it the proper thought.

For example, you receive £500 and owe £540 after two months. Is that £40 cost steep? It depends on what it’s preventing. Is it preventing a late fee on your rent of £200? Great choice! Is it buying you concert tickets?

Many people check out smålån to find out what things really cost instead of guessing what’s best for themselves. The key is reading everything properly and doing the math before committing.

Furthermore, what people fail to include in their calculations is the risk of spending their emergency fund prematurely without a “price”. Yes, there’s no interest incurred for using the emergency fund; however, now you’ve got nothing in your back pocket for potential disasters next time when getting one specific thing with a small loan might be better with costs factored in.

When You Should Not Borrow At All

Some instances are screaming at you not to borrow money.

Paying off another loan with another loan? Stop right where you are. This is how debt spirals begin; these are the kinds of loans that people cannot get out of through consolidation – but those take time too.

If you’re borrowing to pay the same bills you’ve always paid – it does not help that your earned income is not paying for your earned expenses. A loan just defers the payments with added interest; you have to earn more and spend less – period.

Also, paying for things you want – not need – a holiday; a new phone; a fancy dinner out – you can’t afford it without a loan; therefore, you can’t afford it – period.

Can You Actually Pay It Back?

Before any loan, look at your life two months from now. You’re on a timeline – you’re getting paid today and next week – an extra week plus what you owe is already on the table. If you’re considering going without other bills in two months or stressing about food – then you cannot afford it.

So many people apply for small loans because they want to get approved instead of determining whether they can realistically pay it back.

Leaving some room for error is also critical – because sometimes bad things happen – even good things (like new kids). If you’re all-in on making this game plan perfect to get through two months – it’s not a good plan.

Keep It Relative

People should borrow what they need – and not borrow more than they need – even if it’s from the big bank down the street offering big loans.

If you only need £300 as a personal loan, applying for £1k does nobody any good: you’re getting charged interest on extra cash sitting in an account doing nothing with payments due for much longer than anticipated.

That’s why small loans can help fill specific gaps just long enough – that little white lie works better than the “I might as well borrow extra” mentality that larger loans provide – and it’s psychological too!

The smaller repayments in shorter amounts make it less daunting than an overwhelming larger amount set to linger over your head indefinitely until you finally go crazy paying it back.

Making The Right Choice

Smart borrowing comes from being honest with yourself: why do I truly need this money; can I truly pay this back; what are my other options; will borrowing at this point cost me less than not borrowing?

If you can answer those questions appropriately, then a small loan would work for you. If you’re making excuses or contemplating – even in good faith – you should consider it harder.

Money decisions should not come from a set philosophy someone else established. They should come from an understanding of what’s personal in the moment and realistically determine what’s best.

Sometimes that’s small loans; sometimes, it’s not – but knowing when one should be applied is critical.