Short term loans are all over the place, left and right. But what is a short term loan?
In premise, a short term loan is just that, an unsecured loan that is available to you if you have a regular income source. But that’s not all.
In this article, we will cover the short term loan in-depth, so get your popcorn ready and let’s go.
Keep reading to learn more.
What Is a Short Term Loan?
A short term loan is a category of loans that are unsecured, and available to any individual who has a regular source of income. Unlike a traditional loan, in which you generally pay back the sum with interest over a course of several years, a short term loan is designed to be repaid typically within a year, but often within several weeks.
Although the type of loan that you will get will depend on creditworthiness, it doesn’t have to, as many lenders opt-out out of that security, and look for alternatives.
In any case, most of the short term loans work like this:
- You apply for the loan online or in-store
- The lender performs a credit-check or examines your income sources/documents to evaluate financial competency
- If the lender approves of your request, you will get the offer, including the terms and rates. Generally, you will receive your answer quickly, and in some cases, instantly
- You agree to the offer and receive your money by the method of preference. The lender will typically transfer the money within 24 hours of approval for your request
And that’s about it. Of course, there are minor variations from lender to lender, person to person, from time to time, but this is the foundation for all short term loan interactions.
What Are the Benefits of a Short Term Loan?
While not the best option for borrowing money, a short term loan can be quite helpful in times of unrest. Some of the benefits are, but not limited to the following.
A short term loan will provide you with quick access to money that you need at the moment. If you have unexpected expenses that need to be paid for, these loans can help you do just that.
Bad Credit OK
If you don’t have the greatest credit, you are still likely to get approved for a short term loan. As long as you have a regular income, you should have no issue in getting a loan.
In most cases, you will never have to provide any collateral to secure your loan. Your home, your car, or other assets are yours to keep. You can get the money without the risk of losing your possessions.
Most lenders will opt to provide loans that are flexible, meaning they will work with you to develop a payment plan that suits your needs and capabilities. However, this is rarely the case for payday loans.
With a short term loan, you don’t have to commit for several years. You can get the cash that you need, pay it off, and move on with your life.
The Drawbacks of a Short Term Loan
As mentioned, a short term loan is an option, but not necessarily the best option. For instance, a short term loan can provide access to quick cash, but it does come at a price.
Here are some of the drawbacks.
If you happen to experience origination, late payments, or other violations, the fees will quickly add up. Short term loans have excessive costly fees, so watch out.
A short term loan typically comes with a very high-interest rate. If you take this loan out, you might incur lots of payments, but also a greater total loan cost.
Not for the Long Term
It’s in the name. While a short term loan can help you in times of unrest, that’s because the cost and onerous terms are there to support it. It’s not a long term solution to your financial competency.
Types of Short Term Personal Loans
For a fairly small and quick cash influx that you can pay back in a year or less, you will often come across short term loans or payday loans from online lenders, credit unions or banks.
The short term loans from credit unions, banks, and online lenders will vary significantly in interest rates, payback periods, and amounts. You can reach out to each provider to see if they provide short term loans, and find something that is suitable for you.
For instance, a payday loan might provide you with enough cash for you to use until you get your next paycheck, but it’s an expensive solution because of the fees and interest rates.
Most provinces regulate how much you can borrow, and how much a lender can charge in fees and interest. And some locations don’t allow payday loans at all, because people often reborrow or roll their loans over, because they cannot afford the repayment.
Payday loans are a last resort.
How a Short Term Loan Affects Credit
If you choose to take out a short term loan, it is bound to have some sort of effect on your credit. If the lender runs a hard inquiry on your check to decide whether to approve you or not, your credit score will go down several points.
And if you make a late payment on your loan, your credit score might take a serious hit. Not to mention, because short term loans add to your debt load, your credit will be negatively impacted.
If your goal is to build credit, a payday loan will not help, because these loans are not reported to the credit bureau. However, other short term loans are reported and can help improve your credit as long as you make your payments.
Cash for You
Now that you have discovered what a short term loan is, you can finally decide if it’s the right solution for you. Short term loans are great, albeit they come with their own caveats, which you are now aware of.
If you’re interested in an instant-approval short term loan that you can get online, get in touch with us and we will happily accommodate your needs.