Every time you need quick access to cash, a Short term loan can prove to be the right option for you. The loan application process is quick and simple, the disbursement is quick, and you will have to pay the amount in a short period of time. However, the convenience offered by these loans comes at a premium. You have to pay much higher interest rates and processing fees. You should also be careful about the associated risks.
This guide provides you with an insight into short-term loans and whether you should avail them or not.
What Exactly are Short Term Loans?
Short term loans, as the name suggests, are designed to be repaid in a short period of time. The repayment period can range from a few weeks to a year. Another feature that is common to the different types of these loans is that they require no or very little collateral. If you can provide proof of employment with regular income and documents proving your identity, you are likely to get a loan. The absence of collateral and other credit relaxations means that the interest rates, fees, and penalties are extremely high.
Short Term Loans & Their Types
As already mentioned, there are different types of such Quick Cash loans. The most popular ones are as follows:
- Bank Overdrafts: These short term loans are provided by your bank when you lack the necessary funds in your account. The interest rates are quite high for these loans.
- Car Title Loans: If you own your car and it has no loan on it, you can apply for a car title loan. The loan amount will be a fraction of your car’s value.
- Other Forms of Short-Term Loans: If you are employed, you may be able to get a short term loan against your paycheck. You will have to prove that you have a regular source of income. Again, the interest rates and fees are exceptionally high.
Banks can extend your lines of credit to address your temporary cash flow problems.
Why You Should Avoid Quick Cash Loans?
You should consider getting these forms of quick loans only when you have no other alternative to meet your expenses. The following points reiterate the reasons why you should avoid them whenever possible:
- High Interest Rates & Fees: If you apply for just a few thousand dollars, you may have to pay over 400% APR. Besides, you should have the resources to pay back the cash within a few weeks or months.
- Risk of Credit Score Penalties: Firstly, the lender may conduct a credit enquiry, which is going to affect your score. Secondly, the very short duration of repayment increases the risk of missing payments or defaulting. This can also have a negative impact on your credit rating.
The high interest rates can often make it difficult for people to repay such quick cash loans.
If you need a Short term loan, it is recommended to consider other alternatives such as asking a friend or family member or raising funds on your home’s equity. You may also consider taking out a personal loan.
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