A short-term loan can be a valuable option when you’re caught up in an unprecedented cash flow issue. This is true whether you’re looking to sort out a personal emergency or you have a small business or start-up that’s not yet eligible for a credit line with a bank. Short-term loans allow you to save on interest by paying your interest quickly, and usually come with no prepayment penalty which means that you can repay the loan way before schedule!
In this article, we’ll shed light on what exactly short-term loans are, how they work, their distinct characteristics, the eligibility criteria for these loans, the pros and cons, and other commonly asked questions about short-term loans.
What Short-Term Loans Are
A short loan is a type of loan that you take out to sort out a temporary personal need. It’s different from traditional loans in that you’re required to repay it within a relatively short period, usually a few weeks to months from the day you receive the loan. A short-term loan comprises both the principle (which is the amount borrowed) and interest, both of which have to be paid off within the stipulated period.
The idea of borrowing a short-term loan always revolves around repayment terms that suit your budget. Unlike traditional loans, a short-term loan doesn’t require collateral, and you get approved just by having a source of income and a good credit history.
If you’ve tried a hand in business or understand life well, you definitely know that even the even the most well-thought-out and crafted plans can go haywire! Short-term loans can really come in handy when you’re yet to establish good credit. Another attractive characteristic of short-term loans is that they don’t have a pre-set repayment schedule, which allows you to repay the loan at a faster pace and reduce the interest.
How Short-Term Loans Work
Like many loans, a short-term loan is supposed to help you get some money for an urgent need. Short-term loans serve a wide range of emergencies, from wedding expenses, debt consolidation, and renovation expenses, all the way to medical bills and many more. Some lenders of short-term personal loans don’t allow for education expenses but others do.
The way short-term loans operate is simple and yet quite flexible. Short-term loans tend to be ideal for individuals who are looking for low-interest rates on their loans. When applying for a short-term loan, you receive a lump sum amount upfront, and you pay it back over an agreed period.
The great thing about short-term loans is that their flexibility allows for faster repayments. This can be great if you are the type of person who desires to get out of debt quickly.
How to Apply for Short Term Loans Online
Let’s look at the steps involved in the process of applying for an online with Cash Payday Loans:
Filling out your application. Many short-term loans are unsecured, which makes the application process smooth. Ensure you’re accurate in your application and attach any documents required, such as pay stubs.
Compare online lenders. After submitting your application, our lenders will go through your application and send you different loan offers. It’s always prudent to be thoroughly prepared before applying for any loan. Make sure you know how much you want and your desired terms and conditions so that when the offers are sent, you pick the one that has what you want or is at least close to that. When comparing offers, look at their interest rates and repayment terms to know which one is the most favorable.
Reviewing the loan agreement and signing it. Once you find the right loan for your needs and pick the lender you want to work with, you’ll then receive the loan agreement that discloses the terms and conditions of the loan offer. The terms will include the interest rates you’ll be charged for the loan as well as the repayment period and any additional fees.
Receive your short-term loan. Once your sign the agreement and submit it, the lender will then process the loan and send you the money often the same day. This may be done in different ways depending on your chosen lender, but direct deposits to your bank account are the most common. The repayment period may start a short while after you receive your funds and may be as early as a week after getting the money, depending on the lender.
Distinct Characteristics of Short-Term Loans
Short-term loans are distinct from medium and long-term loans in a number of ways. The main difference is that they’re supposed to be paid off relatively quickly. With that said, there are also other characteristics to know about, which will help you decide if a short-term loan is best for your needs and if the terms and conditions are suitable for you:
Borrowing amount. Short-term loans are meant to be repaid within a relatively short period and for this reason, the amounts you can borrow are not so high. The typical borrowing limit falls between $100 and $3,000, however, with our direct lenders the amount may stretch up to $5,000.
Annual Percentage Rate(APR). Lenders of short-term loans charge quite some interest on their short-term loan products. The good news is that the interest is usually lower than in other types of loans as it has a shorter repayment period and the borrower can repay it faster, even before the due date.
They are unsecured. Many lenders charge high interest on short-term loans because they are unsecured. This is meant to compensate for the possible loss due to defaulted loans. Short-term loans aren’t secured, and the lack of collateral for the loans means that there would be no valuable asset such as property to sell and recover the lender’s money when the borrower fails to pay back.
Types of Short Term Loans
Short-term loans come in different forms and it’s good to understand the common types in order to make an informed decision. The different types include:
Payday Loans. The simple working of this short-term loan is that as a borrower, the amount you’re eligible to receive is determined by your earnings. Payday loans that you apply for online are associated with high-interest rates and are best budgeted to be paid for off your next paycheck. This type of short-term loan is ideal for people with a serious need for money and the next payment from their income source is far away. The lender allows the borrower to borrow a lump sum and recovers this amount from subsequent payments.
Online Installment Loans. This type of short-term loan refers to loans that are borrowed and repaid online in bits. The borrower makes an online application after diligently choosing a lender and the loan is taken out based on agreed terms and conditions by both parties. After receiving the money, they get to repay it through fixed monthly payments over an agreed period.
Other common types or sources of short-term loans include selling goods in Installments, customer advances, and accounts receivable financing for business people.
How to Qualify for A Short-term Loan
While it’s advisable to compare as many lenders as you can when considering a short-term loan, the eligibility criteria tend to be standard for most lenders. Some will ask for more information than others, but the following are critical for your application to be approved:
Verifiable Income. Any lender wants to get the assurance that you’ll be able to service a loan, so an income is at the top of the list. Lenders place their hope on you, in terms of your ability to repay the loan, based on your income. They often check to see how easy it is for you to repay the loan and still take care of your common expenses. If it’s easy for you, then the chances of getting your application approved are high.
Good credit history. A good repayment history gives the lender some assurance that you generally honor your loan agreements. Lenders have different credit score requirements for advancing short-term loans, and they prefer borrowers to have cleared all their previous loan obligations. You may be lucky to find a lender who issues a short-term loan without considering your credit history, but you’ll either pay a higher interest rate than the average borrower or receive a very reduced amount. Our lenders can still approve your loan request even if your credit is poor. Some tactics that may come through for you if you’re trying to improve your credit score include paying all your bills on time and avoiding defaulting on payments, cutting down on your current debt (if any), and constantly reviewing your credit report from the bureaus that lenders use to review your credit information.
The Pros and Cons of Short-Term Loans
It’s prudent to consider the possible downsides and upsides of borrowing a short-term loan. Here are some that will go a long way in helping you make a decision:
Improving your credit. By paying off your loan without delays, you reduce your unpaid loans which in effect boosts your credit score.
A lower accrued interest. Short-term loans include lower periods that rule out the possibility of high cumulative interest. By repaying your loan quickly, you reduce even the low-interest rates attached to the loan.
Chances for better interest rates. Lenders generally offer more favorable interest rates for short-term loans compared to long-term loans, even when the principal amount is the same.
Staying out of debt. Quick repayments that come with short-term loans ensure that you stay out of debt, which increases the amount available for use on your next paycheck.
Easy to acquire. Short-term loans are easier to receive because the terms and conditions associated with them are very easy to meet.
Reduced loan limits. Some lenders offer loans of up to $25,000 for other types of loans but may reduce these amounts for short-term loan borrowers.
Rigid terms. In case you change your mind, and decide to roll over the loan, for example, short-term lenders will usually not factor in these changes. This also applies in case you’re struggling to keep up with repayments.
Higher payments. Short-term loans come with the highest repayments because they’re repaid within a shorter period.
Frequently Asked Questions (FAQs) on Short Terms Loans
Many borrowers have different questions concerning various aspects of short-term loans. Here are some popularly asked questions along with their answers:
Where Can I Get a Short-term Loan?
You can get a short-term loan from online lenders, banks, and credit unions. Most borrowers prefer online lenders due to the ease, speed, and convenience that come with working with them. Our lenders are quick to respond, helpful with every borrower’s application in every step of the process, and provide suitable loan offers even for people who are applying for the first time. Please visit our loan application page to begin your process for applying for a short-term loan with our lenders.
Can I get a short-term loan with bad credit?
Most lenders will have a very clear minimum credit score requirement. Some have it as low as 560, but it’s always recommended that you do your consideration before you choose the loan offer you want. If you have bad credit and need to get a loan, go for lenders who don’t focus too much on your credit but who rather factor in other aspects to establish your creditworthiness.
Do short-term loans build credit?
This depends on your due diligence. Most online lenders report their borrowers’ repayments to credit bureaus which can go a long way in building your credit. Make sure you find out if the lender you intend to engage reports repayments to a bureau, and if possible know which bureau(s).
How long will it take to receive a short-term online loan?
The amount of time it takes to receive a short term varies from one lender to another and from one loan type to another. For example, Some lenders can take just a few hours to approve and disburse the money into a borrower’s bank account.
What is APR (Annual Percentage Rate)?
The Annual Percentage Rate is the interest rate the borrower should pay each year for a loan they’ve taken.
Why is the APR on short-term loans set so high?
Lenders set the interest rates of short-term loans very high to compensate for the short repayment period that caps their profits.
Why is it preferable to have a good credit score?
Short-term loans are unsecured, which makes them a high-risk venture for the lenders in case of defaults. For this reason, it’s better if a borrower has a high credit score because they qualify for lower interest rates.
How do lenders check my credit?
Two forms of credit checks exist, hard credit checks and soft credit checks. Lenders perform hard credit checks by sending requests for your credit information from credit bureaus like Experian and Equifax. This type of credit check ends up affecting your credit score and often, the ability to get a loan with some lenders too. Soft credit checks, on the other side, don’t hurt your score and they’re the most popular type of credit check for online lenders. Many lenders can approve your loan application with soft credit checks.
Are there lenders who guarantee approval on all short-term loan requests?
No lender can promise to approve every loan application that comes their way before being certain that the borrower is capable enough to repay the loan without problems. Also, considering that not all borrowers meet the requirements set in place, it can be hard to assure approval beforehand. "Guaranteed loans" or "instant cash advance" is a popular phrase that can be termed as a bad marketing technique that's used by lenders who want to bring in more potential borrowers. Since they follow the same consideration criteria as other lenders, it makes it dishonest that they advertise themselves as people who assure everyone will a get loan with them.
How long will I wait for my loan to be approved?
Some online lenders will send you the money before the end of the day of your application. Other lenders who market their services as instant and quick loans, pay out in a few hours, while others in minutes. It all depends on the lender you’re working with, which time of the day you applied, and how smooth your loan application process will go. Some useful tips to accelerate the process include applying very early in the morning, having all your documents ready so that you submit them fast when asked for them, and staying online and responding to the lender’s concerns and requests faster.
What happens when I’m unable to repay my loan?
More charges will be added to your loan and you’ll end up having a very expensive loan. When you come to a point where you realize that you may not be able to meet your financial obligations to your lender, you should contact them right there and then, and ask them how you two can go about it. Very likely, the lender may offer different options like prolonging your repayment period in a way that will be more favorable. Nonetheless, the lender will charge you for that.
How am I supposed to pay back the loan?
The repayment method for your loan will vary with every lender you choose to pursue your loan with. Each one of them has their most suitable method that works well for them. The most popular method is granting the lender access to your bank account for them to take the agreed amount on the repayment date.
How does Cash Payday Loans help me get a short-term loan?
Cash Payday Loans connects you with lenders who are looking for borrowers. Whether you are looking for an instant cash advance or an installment loan, our lenders respond very fast to applications and they walk you through the entire process so that you’re able to get your money fast and easily. The lenders also have among the best terms and conditions for all their loan products and also higher approval rates as they don’t have many requirements.
How much will I pay for using Cash Payday Loans to request a loan?
Our services are entirely free for the borrower. We understand that you’re in a financial crisis when you decide to seek out a loan and for that reason, we won’t charge you for using our service. We only get compensated by lenders when you’re successful in getting a loan. And the compensation won’t have any effect on the total amount you’ll end up paying back for your loan. We ensure your needs are well taken care of as you borrow and as you pay back. Please note that while we do not charge any fees from the borrower, the lender will charge interest on each loan.
What ways other than short-term loans can I use to get money when I have an emergency?
You can talk to your friends and relatives or approach non-profit organizations which are popular for giving donations to individuals who are in need in your locality or online. These options are much better as you won’t be required to pay back the money with interest if you’ll be required to pay it back at all. When these options fail, you can now consider short-term loans.