Short Term Loans
Has an unforeseen expense made it impossible for you to stay on top of your bills this month? Has a shortcoming in your budget caused you to fall behind on rent, car, or utilities payments? If so, late payment fees, overdraft fees, and bounced check fees can start to pile up making you fall even further behind. How can you get out of this cycle if you don’t have access to lines of credit due to a poor credit score or lack of credit history? A short term loan may be the solution.
What is a short term loan?
A short term loan refers to any kind of small loan that is intended to be repaid in a relatively short period of time. As opposed to a car, home, or business loan that you might be paying off for many years, a small loan is typically between $100 to $1,000 and is intended to help you get out of a sticky situation. The repayment period can be anywhere from a couple of weeks to a couple of months though it’s usually closer to two weeks.
Unlike other types of loans, a short term loan isn’t usually dependent on a good credit score. That means almost anyone with steady income and a bank account can be approved. The tradeoff for a loan that doesn’t require good credit is that the interest rates are quite high. Borrowers should expect to pay a $15 to $30 fee to the lender for every $100 they borrow.
There are two kinds of short term loans. Payday loans, also called cash advances, are small loans that are usually repaid all at once on the borrower’s next pay day while installment loans allow the borrower a little more flexibility to pay the debt off over a series of smaller payments over time.
How it works
Online, a borrower can apply for a short term loan in a matter of minutes. Because most lenders are willing to work with people with poor credit or no credit history, borrowers only need to answer a few questions about the amount that they’re looking to borrow and their income. Approval takes only a few minutes. Once the lender and borrower agree on the amount of the short term loan, the lending fee, and the repayment period, the loan is directly deposited into the borrower’s bank account where he/she can access those funds to pay off their bills. In the case of a payday loan or cash advance, the borrower would repay the full amount of the loan plus the lending fee on their next pay day. For an installment loan, the borrower would make payments according to the previously agreed upon repayment schedule.
Is a personal loan right for you?
Short term loans can be a powerful leveraging tool for borrowers who can’t get access to other lines of credit. When a person falls behind financially, the bank can charge an overdraft fee of $35 every time that person tries to spend money they don’t have, even if it’s only five to ten dollars. The added costs of overdraft fees, late payment fees, and bounced check fees compound the person’s financial problems.
This is where short term loans come in. Though the lending fee for a short term loan is quite high, between 390 to 780% APR, the dollar amount of the lending fee is feasible for most people especially if they borrow responsibly and they use the loan to avoid paying even more expensive fees to landlords, banks, credit card companies, and utilities providers.
The most important thing to keep in mind with short term loans is that they are intended to be short term. The high APR is manageable if you’re going to pay off your loan on your very next paycheck. But lending fees can quickly get out of hand if you’re unable to repay the loan and have to pay additional fees to extend the loan for another two weeks.
Some borrowers get caught in a cycle of needing short term loans every month just to pay their bills. The lending fee costs can add up to hundreds or even thousands of dollars in the course of a single year so borrowers should be careful to only seek a short term loan when it’s necessary. Short term loans should only be utilized in the event of shortcomings in your budget or unforeseen, necessary expenses. It shouldn’t be viewed as a long term solution to insufficient income or as a way to purchase luxuries you couldn’t otherwise afford.