Text loans are short-term payday loans that you can take out during emergencies. The only difference is that you can get money in your bank account by simply texting your lender. Not all lenders provide these loans.
It is often asked why there is a need to provide text loans when payday loans are an alternative. Text loans have been designed to save you from being stuck in an embarrassing situation.
For instance, you are in the restaurant to pay the bill for food you have had with your family. As you slide your hand into your pocket, the next thing you know is that your pocket has been picked. To escape this embarrassing situation, you will think of calling someone of your acquaintance.
However, it might not be feasible all the time. They may be far off. Now comes in a text loan. This may act as a knight in shining armour to bail you out of this most awkward situation.
What are text loans?
Text loans are payday loans. They are also aimed at helping emergencies to help you tide over. There is hardly any difference between both types of loans. When you go for a payday loan, you are supposed to fill in the application form.
A lender will quickly peruse your financial details to decide your affordability and then transfer funds to your bank account. As no credit check is done, it ensures speedy approval and processing.
When you apply for a text loan, you just need to fill in the application form only the first time. Unlike payday loans, you do not need to provide your details every time you apply for these loans. As you are registered with your lender, fill in the application every time is not required. You will just send them a text about the money you need.
Anyone can apply for payday loans, whether you are a registered borrower or a new borrower, but text loans are available only for registered borrowers. Your lender will determine your affordability based on the income record they have with them.
If your financial situations have changed, you can update your details. Text loans are very convenient. You can borrow between £100 and £500. Most of the time, lenders do not offer more than £200. This is why they are called mini text loans from direct lenders.
Are text loans actually a good funding source?
Text loans are a convenient funding source, undoubtedly. You just need to send a text to your lender, and you will get funds in your bank account within a few minutes. Though these loans can save you from an embarrassing situation, you should still be cautious.
These loans could be a bit expensive. If you are not careful, you will end up falling into a debt trap.
- High interest rate
Text loans carry high-interest rates. Though these loans can be offered to those with good credit ratings, they generally target bad credit people. Your credit history is not good, so the default risk is too high. To lessen the risk involved in lending amount, your loan provider will put a higher interest rate.
You will likely be paying off double or three times the borrowing amount. It is crucial to ensure your affordability before applying for a loan. Though a lender will check your repaying capacity when signing off on your loan, you cannot just rely on the methods a lender uses.
You should analyse if you can pay back the debt on time. Use online calculators to estimate the amount you could pay off. The real cost will be superior to this. Make certain that you can manage your usual expenses along with the debt payment. If so, you can apply for these loans.
- No credit check makes them expensive
Text loans are no credit check loans. It means lenders will not peruse your credit report while assessing your affordability. A credit check is a must to analyse the affordability of a borrower. It tells how you managed your past payments.
If you keep up with them, it shows that you are less likely to make a default, so lower interest rates will be charged. Lenders who do not look at your credit report will not have an accurate idea of your financial behaviour.
They will consider you a person of high default risk, and as a result, higher interest rates will be charged. Your credit score is already bad, so it is assumed that the tracking of your payments could have been better. No credit check loans carry even higher interest rates than bad credit loans with guaranteed approval from direct lenders in the UK.
You will likely be paying down four to five times the borrowing amount. Therefore, it is crucial for you to analyse your repaying capacity before applying for these loans. If not, you will end up with an inability to repay the loan and eventually fall into debt.
- A lump sum payment
Text loans require you to repay the debt in one go. The repayment length of these loans is not more than a period of two weeks. In odd cases, it could be up to a month. You are not just supposed to pay back what you borrow but the interest as well.
It is worth noting that interest is an extra payment on top of the principal. You did not have money to bear the principal cost on your own. How will you be able to pay interest as well? This could leave you with little money.
You will probably find it harder to meet your regular expenses, which may result in taking out a new loan. Just then, the cycle of borrowing starts, and it will continue. After some time, you will find yourself up to your neck in debt.
The final word
Text loans are short-term emergency loans and a type of payday loan. They are the best funding source when you need money this instant. You can get money directly in your bank account by providing a text message to your lender, provided you are a registered borrower.
These loans could come in handy when you are in a tight spot, but you should be cautious while applying for such loans. They carry higher interest rates. You should carefully check your affordability before applying for these loans.
Jessica Rodz is the Senior Content Writer at Cashfacts. She has a long career in the field of content writing and editing. Jessica has the expertise in the UK lending marketplace where she has worked with 7 different lending organisations and acquired many responsibilities from preparing loan deals and writing blogs for their websites.
At Cashfacts, Jessica is managing a team of experienced loan experts and doing a major contribution in guiding the loan seekers via well-researched blogs. She has done graduation in Business (Finance) and now currently doing research papers on the UK financial sector.
