Short term loans are in the most basic sense, a financial tool which you can use to meet financial crises head-on; most people are aware of this. What most people don’t know is that short term loans online and considerations come in many different forms. This is why you should always do your research before choosing a finance provider. Luckily enough for you, however, we have done the research for you; all you need to do is consider the facts before making your decision.
Your Guide to Short Term Loans
Generally speaking, there are four kinds of short term loans readily available to the average consumer.
• Payday Loans.
• Credit Union Loans.
• Doorstep Loans.
Each of these four finance options has pros and cons that should be considered, but they all share a few basic factors that make them different from the traditional bank loan. Firstly, short-term loans tend to come in smaller amounts, and they are also paid off over a shorter period of time. Whereas a long term bank loan will generally be paid off over 5 years, a short term loan should be paid off over a matter of months (or even weeks). Other differences include:
• A higher rate of interest.
• A lower lending threshold (though this varies from lender to lender).
• The application process tends to be less rigorous.
• You receive your money quickly (usually within a day or two).
Types of Short Term Loan
Each of the four types of short term loan is suitable for people in different situations, so before you choose one you should consider all of the available options
Payday Loans
As the name suggests, a payday loan is a type of short term loan which is supposed to be paid back on your next payday, however, the name is a little deceptive. Many lenders allow you to pay back your loan over the course of a few months, but this means incurring more interest and charges.
Pros:
• You can borrow as little as $100.
• Quick
• Convenient
Cons:
• One of the highest rates of interest.
• Late fees pile up quickly.
• You may have to pay an extension fee if you cannot pay your debt within the given time.
Credit Union Loans
Credit unions are unique organizations, which means that no two credit union loans are the same. However, generally speaking credit union loans are repaid over a slightly longer period, and have a lower rate of interest than payday loans and most other short term loans. However, credit union loans are typically only open to members of the union, so you should research which unions operate in your area.
Pros:
• Lower rate of interest.
• Larger amounts available.
• Repayments are made over a longer period of time.
Cons:
- You have to be a member of the credit union.
- The application process is longer.
Doorstep Loans
Traditional short term loans from a doorstep finance company generally have less interest than a payday or instalment loan, but they tend to be paid out in cash and will need to be repaid in the same way. This makes them less convenient, but generally more manageable.
Pros:
• Lower rate of interest.
• Manageable weekly payments.
• Repayments made over a longer period of time.
Con:
• Less convenient than other short term loans.
• Longer application process
• Affordability assessment may be required
Installment Loans
Installment loans are perfect for those with bad credit as they are taken out in manageable sums and repaid over the course of a year. Payments are taken in weekly or monthly installments, but the borrowing threshold tends to be lower than it would be with doorstep or credit union loans.
Pros:
• Longer repayment period.
• Convenient and quick.
• Suitable for those with bad credit
Cons:
• Lower lending threshold.
• Slightly higher rate of interest.
Choosing the Right Short Term Loan for You
When seeking short term loans you should consider three main points: your credit score, how much you need to borrow, and how long you would like to repay it over. With this in mind, you will be able to identify the best type of short term loan for your situation. If in doubt shop around to find the best interest rates for you, and remember to only borrow what you know you can pay back to avoid unmanageable debt.
When used responsibly, short term loans are an effective way to deal with life’s little crisis..
