Types of Short-Term Loans
Are you in a financial bind and need quick cash? There are several types of short-term loans available, ranging from payday loans to auto title loans and credit lines. They are a great solution to any emergency expense that requires money right away. Learn more about the different types of short-term loans and how they work. Here are some benefits to applying for a short-term loan.
Are you in a financial bind needing quick cash?
Are you in need of quick cash? Fortunately, the answer is yes, because cash advances are now available online. These loans are short-term, but they can be helpful for a wide variety of needs, from late mortgage payments to the cost of family food and supplies. Even auto loans can be paid with quick cash. You don’t have to worry about having to wait for a check to clear your account – these loans can be applied for online or in person at over 1,200 locations nationwide.
Emergency loans come in the form of personal loans, credit card cash advances, and payday loans. Before you decide to apply, you should understand how each one works and how much you will end up paying. While personal loans are meant for any need, many lenders offer same-day funding. However, if your emergency is more immediate, you may have to wait a bit longer to be approved. It’s essential to understand how each type of loan works, so that you can make an informed decision.
To help you decide if you should get a short-term loan or not, here’s a complete guide. Learn:
- What are short-term loans?
- How do short-term loans work?
- The types of short term loans
- Interest rates on short-term loans
- The pros and cons of short term loans
- Where to find a short-term loan
What are short-term loans?
Before applying for a short-term loan, you should first know your credit score. Many companies will conduct a credit check, so if you have a bad credit rating, you may have a harder time getting approved. Also, a bad credit rating means that the interest rate you pay will be higher, which could put you into a debt trap. In order to avoid this scenario, you should check your credit report for free.
Many lenders are interested in short-term loans, but they want to ensure your business will continue to operate. Most short-term lenders only work with companies that are at least six months old. However, a few will work with brand-new businesses. This is because servicing a short-term loan can be disruptive and expensive. Typically, a lender will ask for a minimum annual revenue or an average monthly revenue, depending on the nature of the loan.
Another drawback of short-term loans is their interest rates. As a result, they’re often higher than other types of loans. Additionally, the interest rates are often higher, and fixed fees are more difficult to manage in the event of unpredictable cash flow. Even a few thousand dollars can come with an APR of 400 percent or more. Because of this, short-term loans are best used only as a last resort.
How a short-term personal loan works
If you’ve ever found yourself in need of a short-term loan, you know that you have a lot of options. Unsecured personal loans, for example, can be easy to qualify for and are typically approved for a credit line of up to $5,000. Unlike credit cards, unsecured personal loans don’t require credit checks or a credit score, and they are a quick and convenient way to get the money you need when you need it most. Nevertheless, unsecured personal loans do have a higher interest rate than credit cards.
The fees and interest rates associated with short-term personal loans are generally high, and can add up quickly. As such, these loans are not a long-term solution. Furthermore, short-term loans can negatively affect your credit score. Hard credit inquiries lower your score. You should compare rates from several lenders before choosing a lender, and look for terms and conditions that fit your needs. Remember that the fees and interest rates of short-term personal loans vary widely from one lender to the next.
Types of short-term personal loans
When you need money fast but don’t have access to credit, a short-term personal loan can be the perfect solution. Upstart personal loans are available in most states except Iowa and West Virginia. Their fast funding times and low minimum APRs make them an attractive choice for borrowers who need fast cash. OppLoans is an excellent example of a short-term personal loan with no minimum credit score. You can borrow from $500 to $4000 with an APR range of 59% to 160%.
PenFed Credit Union is another option for borrowers who need fast money. They don’t charge origination fees, prepayment penalties, or late fees. You can apply online and receive your funds as soon as the next business day. PenFed requires a good credit score, but they do offer flexible repayment terms, including no prepayment penalties. Those with a poor credit score can apply with a co-borrower if they don’t have the funds themselves.
Now, let’s take a look at the different kinds of short-term loans you can get to cover your individual costs.
Payday loans
Payday advance loan are small-dollar loans, usually $500 or less, that are typically due within 2 to four weeks on your next payday, for this reason the name. You can frequently get this loan type even if you have bad credit, as lots of brick-and-mortar lending institutions do not inspect your credit. Instead, they base the loan approval on a recent paystub.
Online payday lenders are still versatile but do frequently check your credit. The disadvantage is, payday loans frequently come at a high expense. Some have APRs as high as 400%, so they’re just recommended if you can’t get approved for other types of financing.
Collateral loans
Collateral loans, likewise known as guaranteed loans, are backed by a possession like your automobile title or other individual residential or commercial property. You’ll most frequently see collateral loans from pawnshops and car title lending institutions when it comes to short-term loans.
Pawnshops enable you to offer an item of worth in exchange for a loan. Then, if you do not settle your loan, they keep your item. If you own your cars and truck in complete, auto title loans provide you a portion of your lorry’s worth. If you stop working to repay it plus interest and costs by the due date, you might forfeit your car.
Collateral loans may be much easier to receive and have lower rates than unsecured loans. If you default, your lending institution can take the possession you utilized to guarantee the loan, so make sure you can pay on time if you go this path.
Personal lines of credit
Unsecured credit lines resemble charge card. You’ll be authorized for a particular loan quantity that you can draw from as required, so long as you do not review the limitation. You won’t be charged interest on any money that you don’t use, which makes credit lines ideal if you do not understand just how much money you need to borrow. You’ll require decent credit to get authorized.
Emergency cash loans
Emergency personal loans can help you cover unforeseen expenses like cars and truck repair work or veterinarian expenses. They’re typically unsecured and have quick funding times to get you the cash you need rapidly.
Upon approval, the loan amount is disbursed as a lump sum. Rates of interest are typically fixed and terms often vary from a couple of months up to a year or more.
The disadvantage is you will usually require decent credit to qualify. Even more, you’ll require good to exceptional credit to get attractive rates and terms.
How much interest will you pay on short-term loans
Many people wonder, “How much interest will I pay on a short-term loan?” The answer depends on a number of factors. For instance, what is your credit score, and how much time do you need to repay the loan? If you have a good credit score, you’ll be able to get a lower interest rate. Generally speaking, short-term loans have shorter repayment terms than long-term loans. However, you can still get a better rate if you pledge collateral.
A short-term loan calculator can be helpful in determining how much you should borrow, as it takes into account things like how long you have been in business, your revenue, and your personal credit score. Before taking out the loan, make sure you can afford the monthly payments. You may have to pay more interest than you would with other forms of lending, which can put a strain on your budget. Lastly, short-term loans often come with high interest rates and up-front fees. It’s important to compare different lenders’ terms and fees to determine which one works best for you.
The average interest rate for 24-month individual loans is 9.50%, while auto title loans average 300% APR and payday loans average 400% APR. Interest rates on short-term loans can fall anywhere in between.
Here’s a closer take a look at how rates of interest might impact you depending upon your borrowing circumstance.
Debt consolidation
When shopping online for a 12-month $1,000 personal loan for financial obligation combination, presuming a reasonable credit rating between 640 and 699, APRs range from 6.49% to 34.99%.
You may be able to get a lower rate of interest and save money by consolidating your financial obligation with a short-term loan, specifically if you have charge card debt. The average rate of interest for credit cards is 14.52%.
Having a single monthly costs instead of several can also improve your finances and prevent you from missing payments.
House enhancement
When shopping online for a 12-month $1,000 personal loan for house improvement, assuming a fair credit report in between 640 and 699, APRs also vary from 6.49% to 34.99%.
A short-term individual loan can be a great choice if you need money for an emergency home improvement project. You’ll get the funds you require rapidly without needing to put your house up as collateral.
Due to the fact that short-term loans are typically unsecured, they might have greater interest rates than secured financing options like home equity lines of credit, which is something to keep in mind.
Business and career development
Short-term loans can assist you cover gaps in capital, purchase stock, and grow your company. Company and personal loans typically have similar rates of interest, but personal loans might be simpler to receive if your business doesn’t have much credit report.
You can also utilize short-term loans to spend for certifications that will advance your career. Personal loans usually have greater rates than student loans, they provide more versatility in the types of courses you’re allowed to take, so they might be a much better option for profession development.
Pros of short-term loans
Short-term loans may be convenient, but you must be careful about overspending. While short-term loans can come with high rates, they are not as expensive as long-term loans. In fact, you can save money if you use the money to pay for emergency expenses, such as medical bills. However, you must also be aware of the risks of overspending and wasting money.
Short-term loans have several benefits. Unlike long-term loans, you can save money on interest by paying back the loan earlier. Most lenders will not charge prepayment penalties. The only disadvantages are long-term payment terms and high fees. Besides that, you can also use the money to pay your payroll and tax obligations. Moreover, a short-term loan doesn’t have any prepayment penalty.
Short-term loans provide businesses with much-needed capital. Compared to long-term loans, these are easier to obtain and may take as little as a few days to process. Since these loans can be repaid sooner, they are ideal for situations where a business has a tight cash flow. However, the interest rates on short-term loans are higher than those on long-term loans.
Cons of short-term loans
While low rates and no prepayment penalties are great perks of short-term loans, they come with some cons. While personal loans generally have higher rates than student loans, they are more flexible when it comes to the types of courses they allow you to take. In some cases, a short-term loan is better for career development purposes. Many lenders offer online application and approval, and you can have the money you need as early as the next business day.
High interest rates. Short-term loans may come with high fees, such as origination and draw fees. Variable interest rates are another big downside. Variable interest rates can cause you to pay more than you intended to, leading you to overspend and waste money. If you can manage to pay back the money on time, short-term loans are a great option for covering emergency expenses, such as a new computer, or a laptop.
Short-term personal loans and your credit
Whether you’re applying for a short-term loan for a family vacation or an emergency, you’ll need to consider your income and monthly budget to determine how much money you can realistically afford. Also, you’ll need to be aware of how much you can afford to repay. If you have bad credit, consider switching to a different lender for the short-term loan. Many lenders will waive the application fee if you pre-qualify.
Another thing to keep in mind when comparing short-term personal loans and your credit is that shorter term loans tend to have higher interest rates. While they’re easier to obtain than long-term loans, short-term loans are typically higher-interest-rate options. Since they’re shorter-term, the payment amounts will be higher than long-term loans. However, the longer repayment term will result in lower interest rates.
While the fast funding timeline is crucial, it may be better to wait a few days. Usually, lenders won’t penalize you for paying off the loan early. But if you’re in a situation where you need the money right now, it might be best to wait until your credit improves. This way, you’ll get the funds you need faster. If you need a loan for a long-term purpose, you may want to consider applying for a credit-builder loan.
Looking for a loan can trigger a small, temporary drop in your credit history if a lender carries out a hard check on your credit report. However, payment history is the greatest element that influences your credit history so if you repay your loan according to schedule, and your lending institution reports your account to the credit bureaus, your credit report will likely get a boost. If you don’t have any installation accounts, getting a short-term loan could likewise improve your credit mix, that makes up 10% of your FICO rating.
On the other hand, if you miss payments, it could have an unfavorable impact on your credit. Your lending institution might report it which could cause your rating to drop by a number of dozen points as soon as payment is 30 days late. So if you can’t make your scheduled payment, it’s finest to get in contact with your lending institution immediately.
Where to find short-term loans
A lot of banks and credit unions offer short-term personal loans. If you want to get your funds quickly, online lenders are worth thinking about. They usually have faster application processes and moneying times than standard banks. Plus, you can easily comparison shop in between online lenders to find the best offer.
The right short-term loan will depend on your individual scenario however the bright side is, there’s a solution for almost everybody. From payday and auto title loans to credit lines and emergency loans, you make certain to get the cash you require quickly to look after your cost, pay it back, and carry on.
Jerome Casey
Jerome is Montana based digital marketing and finance writer. She also loves everything about travelling and good shopping. Jerome writes content for businesses and startups that gets attention on social media and visibility on search engines.