Short Term Loan: What You Need To Know
December 10, 2019, 2 months ago
Even if you manage your money well, an unexpected personal or business expense like an illness, an urgent house repair, a special inventory purchase, or car repair can drain your savings, leaving you in a difficult financial situation. Why choose short term loans for emergency conditions?. If you’re in such a situation and have run low on cash, a short term loan might be just what you need.
Short term loans are a flexible financial tool to see you through a cash crunch. They are loans that have a repayment period of 12 months or less. However, the repayment period is not cast on stone and can go up to 24 months. Ideally, a lump sum is given to you on approval, and the cash is supposed to be repaid within the stipulated time.
Short-term loans generally come in two different forms:
1. Installment loans: This loans is designed to be repaid in several scheduled installments spread across the repayment period. They have a flexible repayment option, making them an ideal choice for most consumers.
2. Payday loans: On the other hand, payday loans are usually meant to be repaid in a lump sum upon receipt of the next paycheck/income. Typically, the lender uses the continuous payment authority to take out the amount borrowed plus the interest from the borrower’s bank account.
Features Of Short-Term Loans
There are several features of short-term loans that make them attractive.
Easy loan tenure up to one year.
Short term loans can be given to a person or a business.
For you to qualify for a personal short term loan, you’ll need to have proof of a regular income such as a salary. On the other hand business short term loans can be taken against business profits. Because short term loans are ideal for businesses that need quick access to cash or startups that do not qualify for a line of credit.
Access to Quick Cash
Short term loans have a relatively easy application process that ensures that the funds are transferred to your bank account within a very short time, sometimes even within 24 hours after application. This makes them a perfect option for people having an emergency that can’t wait for a lengthy application and approval processes.
Lower borrowing limit
The amount that one can borrow is usually relatively smaller compared to other forms of loans
Higher Annual Percentage (APR)
Since these loans are only meant to be repaid within a short time, they may sometimes have a higher interest rate
No collateral Or Guarantor Required
Often, short term loans are unsecured hence might not required to be signed against collateral approval. You don’t have to have a large bank account, own a home with equity, have a guarantor, or even a good credit to access these loans. Short term can be an excellent option for a young adult who’s just starting off, or an individual who doesn’t currently have enough cash to put towards savings.
Quick application process
This is perhaps one of the biggest convenience of short term loans. If you’re an adult with a regular source of income and reside in the US, you can quickly apply for the loan.
Since these loans require minimal paperwork, you can easily apply online and have the money deposited in your bank account within no time.
Depending on the lender, short term loans can be curated to suit your financial needs.
Improved Credit Score
Short term loans can help you improve your credit score. Once you make your payments on time and pay the loan successfully, it impacts your credit score positively.
Some companies can offer you a short term loan even with a bad credit history.
Advantages and Disadvantages Of Short Term Loans
Appropriate for a variety of personal and business purposes
Quick & convenient access to funds
Easily accessible even with a bad credit
Easily Improves Your Credit Score
Loan amounts are capped
Relatively high APR
Frequent repayments may be problematic and have serious risks for late payments
Risk of debt traps
Eligibility For Short Term Loans
The Consumer Financial Protection Bureau (CFPB) stipulates that a borrower can qualify for a short term loan if:
They have an active US bank account
They are at least 18 years of age
They are salaried or self-employed
They reside in the US and have a valid identification
If you meet all these requirements, the loan application and approval process can be as fast as 15 minutes, depending on the lender.
Short term loans are also accessible to people with poor credit and usually do not require a credit check. Several private direct lenders have short term credit facilities even to those with not-so-perfect credit. After doing a soft credit search, they’ll rely on other parameters such as your current financial status to approve your loan.
Five Consideration before Applying For a Short Term Loan
If you’ve decided to apply for a short term loan, there are several things that you should keep in mind:
Be clear about the purpose of the loan
Have a clear plan on how you’re going to repay the loan
Research the interest rates and overall cost associated with the loan
Weigh all the possible risks carefully before deciding whether to apply for the loan
Know your loan duration and repayment plan
When Are Short Term Loans Not Good for You?
Short term loans may be a bad option for you if:
You already have one or more short term loans
You can’t handle higher interests and fees
You want to use it to pay off other loans
You aren’t sure if you’ll be able to pay it back on time
You need it to pay for things you don’t need, such as concert tickets, new clothes, vacation or even a night out.
The Bottom Line?
Often, we run into emergencies that can leave us cash strapped. Short term loans can go a long way in helping us settle this immediate financial needs comfortably. So, whenever you need access to quick cash that you can repay within a short time, consider applying for a short term loan from a reliable and trusted lender.