It is not unusual for consumers to find themselves in need of fast cash by way of a short term loan. People who go in search of a short term loan usually suffer more from bad timing than they do the inability to pay a debt.
Perhaps they need a quick downpayment for that irreparable vehicle, or they find themselves needing to purchase a new home due to relocation. Short term loans can be very helpful in these circumstances, as long as the funds are there to repay the loan when it comes due.
How do they work?
Banks generally provide short term loans with the understanding that they must be paid back within a shorter time frame than the traditional loan. Short term loans are usually repaid over a period of one week to one year, and interest is typically charged weekly or monthly.
Although tenants are just as eligible for short term loans as are homeowners, applicants who don't have collateral to place as a guarantee will have to provide the loan officer with proof of a steady income, whether from employment, pension or government allotment.
Interest rates are also slightly higher for short term loans, and some lenders require the payment of additional fees to compensate for what they perceive to be smaller period of interest.
Why choose short term over long-term?
With such a short repayment period, short term loans can be a burden to those who aren't sure of their future capability to pay, especially if they take out a secured loan that uses their home as collateral. But since the loan is paid off in such a short time period, its burdened is lessened by the fact that those payments can have only a short term financial impact on borrowers.
Some lending companies will lighten the consumer's burden even further by allowing you to pay the entire loan off at one time, rather than spreading it throughout many months. This can be convenient for those who have another loan out already and cannot foresee making two loan payments at once.
Short term loans do have their drawbacks, including the inability to further borrow until the current loan is paid and a certain period of time has passed. In addition, a person's credit rating can suffer with the preponderance of too many short term loans, even if the amount is paid back within the required terms.
However, as it lacks in one area, it makes up for in another. Consumers will have the money they need quickly, and can often take care of payments that need immediate attention.
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