What are short-term loans? No one often expects the financial emergencies that pop up at odd intervals in our lives. These financial emergencies then lead to one requiring immediate access to funds. One of the best solutions to those pressing needs is short-term loans.
Short-term loans offer a quick and accessible solution to borrowers to deal with these urgent financial needs. It further provides borrowers with the necessary funds to cover expenses that cannot wait until the next paycheck or other income sources. Unlike long-term loans, which are repaid over several years, short-term loans are typically repaid within a few weeks or months.
What Are Short-Term Loans?
These are financial products that have been designed to provide borrowers with immediate funds for a limited period. Additionally, these loans are acquired to cover unexpected expenses, such as medical bills, car repairs, or urgent home repairs. Due to their short repayment period, short-term loans often come with higher interest rates than long-term loans.
Types of Short-Term Loans
Here are some of the types of short-term loans that are available to borrowers of all kinds:
Payday Loans
Payday loans are one of the most common types. They are typically small, unsecured loans that borrowers must repay by their next payday. These loans do not require a credit check and are easy to obtain. This makes them accessible to individuals with poor credit. However, payday loans often come with high interest rates and fees, which makes them an expensive option for borrowing money.
Personal Loans
A Personal loan can both be short-term and long-term, depending on the lender and the terms of the agreement. The short-term personal loans are usually repaid within one to two years. They can be used for various purposes, including debt consolidation, home improvements, or covering an emergency expense.
Credit Card Cash Advances
A credit card cash advance simply allows its cardholders to withdraw cash up to a certain limit, which is added to their credit card balance. This type of short-term loan is convenient but it does come with high interest rates and fees. Unlike normal purchases made with a credit card, cash advances usually do not have a grace period, which means the interest starts accruing immediately.
Installment Loans
An installment loan is another type of short-term loan that can be repaid in fixed monthly payments over a set period. This set period often ranges from a few months to a couple of years. What’s more, these loans are often used for larger expenses, such as purchasing appliances or covering major car repairs.
Benefits of Short-Term Loans
Here are some of the benefits you get when you take out a short-term loan:
Quick Access to Funds
One of the main advantages is the speed at which they can be obtained. Many lenders offer same-day or next-day funding, which grants borrowers the ease to address their financial needs immediately.
Flexible Loan Amounts
These types of loans typically offer a wide range of loan amounts, which allows borrowers to choose the exact amount they need. This flexibility reduces the overall cost of the loan and helps prevent over-borrowing.
No Long-Term Commitment
Since these funds can be repaid quickly, borrowers are not committed to a long-term financial commitment. This can be beneficial for individuals who prefer to settle their debts quickly and move on.
Easier Approval
Getting this loan is fast and also has a simpler approval process compared to long-term loans. Many lenders do not necessarily require extensive documentation or a high credit score. This is what makes this loan available to borrowers of all kinds.
These are some of the beneficial advantages that short-term loans provide to borrowers in need of financial aid.
Risks of Short-Term Loans
Here are determining risks and cons that borrowers face when dealing with short-term loans:
High-Interest Rates
For short-term loans, lenders will often charge higher rates to compensate for the increased risk associated with short repayment periods and unsecured borrowing. This makes getting these loans an expensive option, especially if the borrower is unable to repay the loan on time.
Debt Cycle
Borrowers often face the high cost of short-term loans and this could prove difficult for them financially. Due to this, they may also find themselves trapped in a cycle of debt. If a borrower is unable to repay the loan on time, they may need to take out another loan to cover the first one.
Limited Borrowing Amounts
Another setback you face is that you might face a limit on just how much money you can borrow. While this can prevent over-borrowing, it may also mean that borrowers cannot access enough funds to cover larger expenses.
Impact on Credit Score
Some short-term loans do not require you to undergo a credit check. However, failure to repay the loan on time can still negatively impact the borrower’s credit score. Additionally, it can make it more difficult to obtain credit in the future and may result in higher interest rates.
How to Apply for a Short-Term Loan
Here is a simple step-by-step guide on how you can apply for a short-term loan with ease:
Determine Your Needs
Before you apply for a short-term loan, you need to first assess and find out just how much money you need to solve your financial issue. Hence, you must consider whether you can afford to repay the loan within the short repayment period.
Compare Lenders
This involves you researching available lenders and the type of loan products they offer. So, it is both essential and crucial to compare different lenders, interest rates, fees, and repayment terms to find the best option for your situation.
Gather The Required Documents
Before taking out a short-term loan, you must be deemed eligible. This can only happen when the lender goes through your necessary documentation. Furthermore, most lenders will require certain documents like your proof of income, identification, and bank account information. Having these documents ready can speed up the approval process.
Submit Your Application
Once you’ve settled on a lender and gone through the terms, you can submit your loan application. There are lenders what will offer online applications that can be completed quickly.
Repay the Loan on Time
To avoid additional fees and damage to your credit score, ensure you repay your short-term loan on time. If possible, you should set up automatic payments to ensure you don’t miss a payment.
These are advisable steps on how you can apply for a short-term loan and still qualify, without affecting your finances.
Where Can I Borrow Short-Term Loans From?
Here are some online lenders from different sources you can get your short-term loans from:
- Upgrade: Best-secured short-term loans
- SoFi: Best Quick short-term loans
- PenFed: Best small short-term loans
- LightStream: Best short-term loans for customer satisfaction
- Avant: Best short-term loans for fair credit
- Upstart: Best short-term loans for bad or no credit
Frequently Asked Questions
Here are some frequently asked questions you can check out:
What happens if I can’t repay my short-term loan on time?
If this scenario plays out, then you may incur additional fees and interest from the lender. Also, some lenders may offer extensions or rollovers, but this can lead to a cycle of debt. You must communicate with your lender if you’re having difficulty making payments.
Are short-term loans safe?
As long as you are dealing with a reputable lender with positive reviews, getting short-term loans can be a safe process. However, due to the high costs associated with these loans, it’s essential to fully understand the terms and conditions before you start borrowing. Always research the lenders and avoid those with predatory practices.
How quickly can I get a short-term loan?
Some lenders offer quick approval and funding, with their short-term loans. However, other lenders provide next-day access to funds. The process speed depends on the lender you work with and how quickly you gather all necessary documentation.