The growth of lending in finance has opened the doors to many products that even a decade ago may have been called “exotic”.
One of the areas of lending that’s experienced exponential growth is the short-term lending space. Many times, people need a small, short-term loan to assist with a variety of situations. If you find yourself in that situation then you’re in the right spot. This guide will go through the aspects of a short-term loan, allowing you see if it’s the right fit for you.
What Are Short Term Loans?
First, the question many start with is asking what a short-term loan exactly is. As the name implies, it is a loan that is short in duration, meaning it is to be repaid within a month or so. Many short-term loans will go out 30-days, all the way to 90-days. Some of the more specific products in this category include:
- Cash advances
- Payday loans
- Tribal loans
- Installment loans
- Car title loans
These loans could be considered an installment loan, meaning they are to be repaid in equal payments. One item to note is that these loans are typically more expensive than a traditional, personal loan, but we’ll dive into that in a bit.
How Short Term Loans Work
They work like any other loan product on the market. However, the application process is typically a bit shorter. When applying, you will need information such as your address, social security number and proof of income. Since many of these loans are unsecured, you will not need collateral such as a vehicle or home.
Once you’ve completed the loan application process, you will like receive an answer right away or at worst case, within 24-hours. If approved, funds are deposited into your bank account and you can begin spending how you see fit. The repayment of a short-term note can be in one lump sum or spread out over a few equal payments, depending on the final duration of your loan.
Reasons You May Need a Short Term Loan
It’s not something everyone will need and are geared for specific situations. These loans are designed to be short-term financial solutions, not long-term. If relied upon long-term it can make the situation worse.
- Pay a mortgage payment
- Pay a rent payment
- Pay an auto loan
- Repair a car
- Make home improvement repairs
- Need an emergency loan
- Pay for a medical expense
Often, the benefits of taking out a short-term loan are better than the negative consequences of letting a bill go past due.
One of the advantages of applying for a short-term loan are funds typically show up with 24 to 48-hours. This means should an emergency arise you can look to receive funds in an expedited manner. More traditional loans can take 3-5 business days. Another advantage is the ease with which you can apply for a short-term loan. Many lenders have an exclusively online application process.
Should you need more time, want to do research or need to retrieve specific information, you can do so without the pressure of face-to-face interactions.
As with any financial product there are some drawbacks to consider. The first one is this is an extremely expensive form of borrowing. The interest rates are significantly higher than many other options, which is the nature of this product. Therefore short-term loans are designed for emergency situations and should be rapid as quickly as possible.
Another disadvantage is the loan amounts are typically capped at a few thousand dollars. If you have a more significant cash flow need, you may need to resort to a personal loan or other means of financing. Each lender is different so ensure you take a peek into their terms and conditions before making a final decision.
Short-term loans are a quick way to cover unexpected costs. With quick funding times, you can keep your financial life on track. However, keep in mind this should be used as a short-term financial solution and not relied upon for long-term funding.