A short term loan is a financial product that provides cash to the user in exchange for an agreement to repay it within a certain time period. The term ‘short term’ applies to the length of time the loan will be valid for; the ‘loan term.’ A short term loan is usually valid for only one to three months. However, in some cases, the loan term may be as short as a few weeks or days.
The advantage of a short term loan is that the rate of interest is usually very low. Short term loans rely heavily on floating rate technology, which allows the lender to adjust the interest rate, based on the rate of inflation or deflation. The rate of interest for short term loans cannot be calculated in advance, because it is subject to change. This makes short term loans ideal for people who are always on the go, or who need an emergency cash infusion.
How Does it Work?
The premise behind all short term loans is that the borrower must be able to repay the principal (the amount of money initially borrowed) plus interest by a certain date. If this is not the case, the lender has the right not to renew the loan. The repayment of the principal plus interest is called a ‘balloon payment,’ because it involves paying back a large sum of money in a hurry. This is often difficult for borrowers who do not possess deep pockets.
As a result of the financial crisis of 2008, more and more companies have been loaning money to individuals and businesses to help them get back on their feet. Companies have also been entering the market to provide short term loans because the demand for fast loans has increased as a result of the pandemic.
The Difference Between Short Term Loans and Personal Loans
It is important to distinguish between personal loans and short term loans. The terms are closely related, but they refer to two separate things. The primary difference between the two is the time frame during which the loans are valid. Short term loans are valid for only a certain period, while personal loans have no set time limit.
Short term loans may be used for a variety of reasons, but the most common ones include:
- Household expenses
- Travel
- Medical emergencies
- Businesses requiring quick cash
- Higher education
On the other hand, personal loans may be used for:
Pros and cons of short term loan
You need some quick cash but aren’t in a position to borrow from your bank. You consider an online money lender but aren’t sure how their processes work or whether or not they’re any good. Deep down, you want to give every penny you have to your wife/husband who is currently six months pregnant. Or maybe it’s your sister who just got engaged. All of a sudden, you have a large sum of money to give away and don’t know how to choose a decent gift. Bummer!
If you’re looking for a way to temporarily smooth out your finances and need some advice, read on. We’ll discuss the benefits and drawbacks of taking out a short-term loan.
Pro: No Collateral Required
Before you start criticizing a particular lender or borrowing agency, allow me to point out that, in most cases, you don’t need to worry about collateral. That is, you don’t have to provide any property or goods as assurance that you will repay the loan. Many short-term lenders will work with you on a personal loan basis. Your credit history and capacity to repay are all that’s required.
Bank loans require that you provide collateral to get the loan. If you don’t have any property or goods that they can use as security, they will require you to put up a collateral deposit or pay an additional money payment. The lack of collateral means you won’t have to worry about satisfying creditors if you default on a loan payment. This could hurt you in the long run. Banks are also more likely to push you for additional loans if you’re behind on payments. They know you can’t afford to pay back what you owe. In most cases, this will affect your credit score, which will make it harder for you to borrow money in the future. Short-term lenders operate with less strict lending policies than banks. For this reason, they are typically much more flexible when it comes to repayment terms and options.
Con: High Interest Rates
Before you start criticizing a particular lender or borrowing agency, allow me to point out that, in most cases, you don’t need to worry about high interest rates when you take out a short-term loan. That is, the APR on short-term loans isn’t usually that bad. Well, it can be if you’re dealing with a scammer. However, as long as you’re not doing business with a fly-by-night lender, you shouldn’t have to worry about high rates of interest. The key word is “short-term”. If you’re borrowing for longer than three months, then be ready to eat money like candy. This is not a good idea.
At the higher end of the short-term loan scale, you’ll start seeing interest rates in the region of 15%-20%. Some lenders specialize in providing loans with extremely high rates of interest. In most cases, these loans are available for either commercial or personal use. If you have a bad credit history, then opting for a high-interest-rate loan could potentially ruin your financial situation. Just look at what’s happening in the world right now. Interest rates are at an all-time low. It would be a shame to miss out on this opportunity because you’re scared of high interest rates. Remember: your goal is to find the best possible solution for your money problems, not to punish your bank account through high-interest-rate loans.
Pro: Flexible Repayment
If you’re looking to get a short-term loan, then perhaps the most important thing to consider is the repayment options. All of a sudden, you have cash to give away and don’t know what present to buy for Aunt Martha. Or, you’re in a foreign country and need local currency to make the mandatory hotel and food purchases. Without a doubt, the best thing about taking out a short-term loan is that you have many options when it comes to paying back the money you owe. If you have a bad credit history, then it’s even better because most lenders will work with you. Many short-term lenders offer alternative repayment plans and extended payment options. This is especially beneficial if you’re struggling to make the required payments each month.
If you’re looking for a way to pay back money you owe without going into too much debt, then short-term loans are a viable choice. You can apply for a loan today and, in most cases, have the money deposited into your account within a couple of days. Alternatively, you can take longer to pay back the loan. The important thing is that you want to find a lender that is willing to work with you. If you go through a reputable agency, then you can be sure that all your details will be kept confidential. This, in turn, will greatly reduce your stress levels when it comes to repaying financial obligations. Short-term loans are extremely beneficial for those who want to avoid debt. They can provide the necessary cash injection without causing too much damage to your financial situation in the long run.
Con: Less Legwork
Many people who opt for short-term loans don’t do their homework. This, in turn, can lead to problems. If you’re applying for a loan without doing your research first, then it’s almost guaranteed that you’ll end up dealing with a scammer. In most cases, these individuals prey on the elderly and ill with scurrilous telemarketing calls and terrifying voicemails. They will claim that your government or a royal society is interested in funding your project but need to verify your identity and eligibility for a loan. The best course of action is to be weary of unsolicited phone calls, especially if the caller claims to be from a royal body or a government agency.
On the other side of the coin, doing your homework can also lead you to a reputable lender who will work with you on a personal loan basis. In most cases, you will need to provide supporting documentation, such as a copy of your passport, visa, driver’s license, or birth certificate. In some instances, you may be asked to provide a copy of an ID card or credit card. In the event that you don’t have any of these items, then it’s highly likely that the loan will be rejected. Even in cases where the personal information provided by the applicant is true, it’s still highly unlikely that they will be granted a loan, as the financial institutions are more likely to be concerned about repaying the money lent.
Pro: Better For First-Time Applicants
If this is your first time applying for a loan, then short-term loans are a better choice. In most cases, you won’t need to provide lots of personal information, and this will make you much more comfortable submitting an application. In fact, many financial institutions will ask you to just supply your email address and phone number. This is a great way for the financial institutions to get in touch with you, should they need to verify a few details about your application. In most cases, you will receive a message notifying you that your application has been submitted and be given a due date, which you then have to meet. This is a lot easier than dealing with the hassles of applying for a traditional loan. Most importantly, if you meet the conditions set by the lender (typically having a good or acceptable credit history), then you will be given the money you need, usually within a few days. In the event that you don’t meet the stated conditions, then you will have to start over again, from the beginning, with a new application. This can be an extremely frustrating process, particularly if you’re just applying for the sake of applying.
Con: Default Risk
In most cases, you don’t need to worry about default risk when you take out a short-term loan. That is, the lender will not repossess your property or possessions if you don’t repay the money. In most cases, the only consequence of not repaying the loan is that your credit history may be affected, which prevents you from borrowing money from any other institution. In extreme cases, lenders will go after your property or credit cards to recover the money. However, this is a very rare occurrence and something you need to be aware of. Still, if you’re looking for a way to borrow money without having to worry about satisfying your creditors, then short-term loans are a viable choice.
What you’ll need to apply for a short term loan online?
Getting a high-quality loan online can be simple and quick with online lenders, but you’ll still need to meet certain criteria. Here’s what you need to check off before getting approval from the money lender.
You Must Be Able To Manage Your Lending
If you’re looking for an easy way to get money, a loan from a friend or a family member may be your best option. However, if you have a bad credit history, you may not qualify for a personal loan from a bank. If this is the case, you’ll need to check out online lenders who can still provide you with good service even though you have bad credit. You’ll also need to be able to show that you can pay back the loan in full with a good chance of repaying it. Otherwise, you’ll end up in an even worse situation than you were in before you borrowed the money.
You Must Be Over 18 Years Of Age
The minimum age requirement for a loan depends on the type of loan you’re looking for, but most short-term loan providers will want to see that you’re at least 18 years old. If you’re younger than this, you’ll need to get permission from your parents or guardians before you can apply for a loan. The reason behind this is that most lenders don’t want to provide loans to applicants who they believe are still in school. Additionally, minors are not always allowed to get credit cards, so they’ll need a trusted adult to cosign for their loan applications if they want to get any form of credit. Many online lenders will allow students to get a loan as long as they’re enrolled in an accredited educational institution and meet the other requirements set forth by the lender. Check with the lenders’ website for more information on the enrollment requirements for their loan programs.
You Must Be A United States Citizen
If you’re looking to borrow money to make big purchases or pay off debts, you may qualify for a personal loan if you’re a US citizen. You’ll need to meet the criteria set forth by the lender, including being a US citizen, but if you can prove that you are, this will certainly make you appear much more attractive to money lenders who are likely to give you loan approval.
You Must Have A Job
If you want to apply for a loan through a traditional lender, you’ll need to have a job. Most traditional lenders require you to have been employed for at least six months before you can apply for an unsecured personal loan. If you’re looking for an unsecured loan, you may qualify for one if you’re unemployed or underemployed. Traditional lenders do not always provide loans to applicants with credit problems, so if you have bad credit or no credit at all, you may need to look into alternative lenders who are more likely to make a loan to you if you can prove that you’re at least minimally employable. You may also need to look into getting a cosigner who can vouch for your repayment ability. Your employer may be willing to help with this, assuming you ask them nicely.
You Must Have A Bank Account
If you want to apply for a loan through a bank, you’ll need to have a bank account. Most banks will require you to have a savings account or a checking account in order to qualify for a loan. If you don’t have a bank account, you’ll need to get one before you can apply for a loan. This could be difficult if you’re not employed and don’t have a steady source of income, so it’s best to get a job as soon as possible so that you can get this part of the process done. Banks are notorious for turning down loan applications from borrowers who they believe will be unable to repay the loan. If you believe that you will be unable to repay the loan, you may need to look into alternative lenders who aren’t as harsh as banks when it comes to denying loan applications. However, this usually means that you’ll need to be approved for a bigger loan, so you’re better off just applying for a bank loan than risking being turned down by an online lender.
You Must Have A Valid Driving License
If you’re applying for a loan through a bank, you’ll need to have a valid driver’s license. Most banks will require you to provide a license when applying for a loan, and they’ll also require you to have insurance coverage. If you don’t have a driver’s license or insurance coverage, you’ll need to get these items before you can apply for a loan. Banks are pretty good about providing loans to applicants who they believe will be able to repay the loan. They’ll want to ensure that they’ll be able to collect the money if they’ve given you the loan. However, if they’re feeling particularly generous, they may provide you with a loan even if you don’t have the aforementioned items.
You Will Need To Provide A Credit Report
When applying for a loan, you’ll need to provide your credit report. This is a document that contains information about your credit history and status. If you don’t have a credit report, you’ll need to get one. Your credit report will contain a detailed account of your financial transactions, as well as the status of your line of credit. If you have a poor credit score, it may be difficult to get approved for a loan, so it’s important to try and improve your score as much as possible. You can do this by paying your monthly bills on time and in full, making sure that your credit card applications are always declined (until you get a good credit score), and making sure that your insurance coverage is up to date. You should also look into applying for a credit card with a zero percent balance transfer offer. This can help you improve your credit score quickly and affordably.
You Must Have A Home To Invest In
If you want to borrow money to invest in a home or commercial property, you’ll need to have a suitable place to live. Most lenders will want to see that you have a place to live before they’ll provide you with loan approval, so if you’re still living with your parents, this may be a problem. You may need to get permission from your parents or guardians in order to get a loan for this purpose. Your credit score will be a major factor in determining whether or not you’ll be granted a loan for this purpose, so if you have a low score, this may be a problem. You can help your credit score by getting a job and establishing a good track record of paying your bills on time. Additionally, if possible, you should consider getting a secured loan (where the lender will be taking a security interest in your home or property). This will increase the chances of getting approved for a loan and increase the amount of money that you can borrow. However, this option is only available to certain borrowers who meet the criteria set forth by the lender.
You Must Have Enough Savings
If you want to apply for a loan, you’ll need to have enough money in the bank to cover at least three to six months of expenses. There are some exceptions to this rule, but for the most part, you’ll need to have sufficient savings to cover at least this amount. If you don’t have three to six months of expenses saved up, you’ll need to look into ways to earn more money so that you’ll have enough savings. It is extremely rare for a borrower to be turned down for a loan for this purpose, provided that they can prove to the lender’s satisfaction that they will be able to make the payments back. In some cases, the borrower may be required to put down a 10% down payment or they may have to pay for some or all of this amount in cash.
