What Are Short Term Loans? Are They Ideal for My Financial Needs?
Financial needs often arise — sometimes, in the most uncomfortable times — without prior announcement of its arrival. And in many cases, it finds most people, entrepreneurs inclusive, mostly unprepared to handle the weight of the circumstances alone. In such situations, the next reasonable course of action would be to look for fast cash online or elsewhere. But it's not just about borrowing. You'd want to apply for a loan that you can get as soon as possible.
This is where short term loans come in. They're types of loans that you can apply for and get within 24 hours. Short term loans can come in different ways: payday loans, title loans, installment loans, trade credit, business line of credit, etc. Short term loans are ideal for quick business financing and emergency funds as they typically do not require collaterals and involve less paperwork. In fact, some of them are entirely online. After submitting your applications, it will be approved or declined in minutes, and if you're approved, the lender will credit your bank account within 24 hours.
What Are Short Term Loans?
According to the Corporate Finance Institute, a short term loan is a type of loan that you can obtain to finance a temporary personal or business capital need. Many online lenders provide short term loans today. But you want to be sure that you understand all the terms and conditions in front of you, including the interests and charges, before accepting. This is because some short term loan offers will help you weather the storm on tough days but can quickly become a debt trap.
MoneyZap, for instance, is a short term loan lender, but at the point of disbursement, you will see all interests and charges. Short term loans are typically scheduled to be repaid in less than a year — 18 months, at most.
A short-term loan is an ideal option for small businesses or start-ups that aren't yet eligible for a bank's credit line. The loan amounts can range from $100 to $100,000. Two of the most common types of short term loans are payday loans and installment loans.
Payday loans are another category of short term loans. They're emergency loans with a very simple (mostly online) application process. When it comes to payday loans online, you must pay the entire loan amount, including the interest, on the due date.
Unlike other kinds of short term loans, payday loans have higher annual percentage interests (APR).
In most cases, payday loans are high APR loans typically meant for 30 days or less, with the repayment scheduled on the borrower's next payday. Installment loans, on the other hand, can be repaid over many weeks or months in installments.
Installment loans have lower APRs than payday loans. But because of the higher number of total installments and the extended repayment period, the overall fees and interest accrued at the end of an installment loan can be higher than that of a payday loan.
'Installment loan' is a broad term used to refer to different kinds of personal and commercial loans. Installment loans can be short term or long term. The main characteristic of installment loans is that you pay them over a period of time. Each payment in an installment loan includes a portion of the principal amount borrowed and a percentage of the debt's interest. Usually, what determines the amount paid on each installment is the amount borrowed, the interest rate charged, and the loan's length or term.
Examples of installment loans include auto loans, mortgage loans, and personal loans. Except for mortgage loans, where the installment amount may vary in-between the payments, all installment loans are fixed-rate loans. In essence, the borrowers can include the payment in their budget every month.
Other Types of Short Term Loans
Lines of credit
A line of credit is a flexible loan, which is similar to a credit card loan, only that it is available in your bank account, and not your credit card. But like a credit card, a line of credit offers you a limited amount of funds available for you to use anytime and however you wish. As needs arise, you can access a line of credit and then repay immediately or in installments over a predetermined time.
Like all short-term loans, a line of credit has a quick application process. Lines of credit are ideal for businesses with financial needs over an extended time but do not want to always go back to the bank for a new loan each time. If you choose to repay in installments in such a case, then the balance is determined by how much of the line of credit you have already withdrawn.
How Can I Apply for a Short Term Loan?
The process is simple and easy. With most lenders currently providing their services online, all you need to do is fill out a quick online application form, submit it, and wait for approval.
Typically, lenders will review your application within minutes of applying, and you will know if you're eligible or not. Once approved, they will send the money to your bank account. Clearly, to receive the funds, you should have a checking bank account.
Advantages of Short Term Loans
- Smaller interests: the interest you incur on a short term loan is less than long-term loans, which involves a significantly higher interest. Hence, this kind of loan is ideal for emergency funds or other similar business needs.
- Quick funding time: short term loans are typically approved within a day and sent to the borrower's bank account. They're less risky compared to long term loans. The maturity date is shorter, and there's no need for collaterals; hence the company processing the loan request usually makes the process seamless and fast for borrowers.
- Seamless processing: given the nature of short term loans or payday loans, you really do not need to stress to obtain one. Most lenders maintain an easy-to-use online application portal. While some types of short term loans may affect your credit score, many of them won't hurt your credit rating unless you're a serial defaulter. In fact, people with bad credit scores can apply.
- Simple eligibility requirements. The requirements for short-term loans are generally easier to meet, partly because of the amounts involved. This makes it easy for the lender to approve in a short time.
Disadvantages of Short Term Loans
Judging from past trends, the problem with short term loans — both online and in-store — has been inflexibility on the part of the lender, which causes borrowers to get stuck in debt. Consequently, the borrower cannot meet up the repayment deadline while the interests continue to add up.
In addition to that, the loan amounts are smaller than medium or long-term loans. They're best for emergencies. This is why the repayment period is short.
Where Can I Get Short Term Loans?
When you're dealing with a financial emergency, getting a short term loan can be your quickest way out of an embarrassing situation. The good news is that you can get an online short term loan today — without leaving your home. You can apply on your phone, tablet, or computer and receive the funds straight to your bank account the next business day.
You can find several examples of perfect payday loans or short term loans for an emergency need online. Most lenders offer $100 to $255 online payday loans to people who have a bill they must pay right away. However, if you`re looking for short terms loans, it`s best to go for a direct lender who offers borrowers flexible payment options that help them stay out of debt traps.
Another good thing about short term loans — as mentioned earlier — is that a good credit score is not a prerequisite.
More About Short Term Loans
You should avoid lenders that offer roll-overs to borrowers. The nature of roll-overs is such that more fees will be charged as you borrow more. This can land you into a debt trap sooner than you can imagine. Instead, you can get a flexible repayment plan that sites your earning and circumstances. Some lenders allow borrowers to apply for more credit once they pay off an existing loan.
This means that you may qualify for better loan offers after successfully paying your first loan. Essentially, paying back faithfully on schedule could mean a lower interest rate, higher loan amount, or even both. Such offers allow you to build a better credit score, especially if your current credit score is bad. Since some of the loans are eligible for credit reporting, you can use them to build your credit score.
Additionally, avoid lenders that charge hidden fees. Ideally, what you'll pay is exactly what you should see before you hit submit. You will not need to pay any late fees other than those you are told about upfront. This means that there are no additional interest charges, and no other hidden fees, except for those you've already been shown.
Will a Short Term Loan Affect My Credit Rating?
Yes, a short term loan can affect your credit rating, especially when it goes on your credit report. Your credit report is a comprehensive record of your credit history. It includes details of any payday loans you have applied for or taken out before.
A credit inquiry will be sent to the credit bureaus when you take out a short term loan. Typically, this inquiry knocks off a few points from your credit rating. However, most short term lenders will not turn down your application, even if your credit score is low. If you already have a bad credit score, you can also improve it by taking out a short term loan, paying back on schedule, and have the lender report your performance to the credit bureaus.
How Do I Check My Eligibility for a Short Term Loan?
If you are 18 and above, you're likely eligible for a short term loan. Most importantly, need an email address and a checking bank account. Besides, you may need the following too:
- Your personal information (name, address, SSN, and a means of ID)
- You must be a US citizen or legal resident.
- Service members on active duty or the dependents of an active duty member may apply as well.
How to Get a 500 Dollar Loan?
The process for requesting a 500 dollar loan is the same as what we already discussed above. But most importantly — in addition to the requirements listed above — you need to be able to show proof of your ability to pay back. Also, b certain that you understand the terms and conditions before accepting.