Short term loans tend to get a bad rap, yet the truth is when borrowed responsibly, a short-term loan could be the life preserver you need.
There comes a time in everyone’s life when they need a lump sum of cash in a short period of time and unless you have stellar credit or collateral, obtaining a traditional loan is unlikely.
Short term loans then offer a fast solution to many of life’s circumstances such as those listed below:
When are Short Term Loans Beneficial - Table of Contents
What Is a Short-Term Loan?
First, it is important to understand the difference between a traditional loan and a short-term loan. A short-term loan is a loan for a small amount (typically totaling less than $2,000). Such loans are often geared towards those with poor credit and thus has minimal eligibility requirements. An applicant must have verifiable income, a checking account, and be at least 18 years of age.
You are generally given less than a year to repay the loan and are given a repayment plan structure to follow. Upon approval, funds are typically deposited into your account within a few business days.
When Are Short-Term Loans Beneficial?
So when does it make sense to apply for a short-term loan? Below are a few scenarios to consider:
Reason #1 Short-Term Loans are Beneficial: Prevent Collections
Do you have a small debt that is about to enter collections? If you’re trying to rebuild your credit, having delinquent accounts in collections will certainly bring your score down.
Obtaining a short-term loan in this instance would prevent the debt from transferring to collections and over time help to improve your credit history.
Reason #2 Short-Term Loans are Beneficial: Unexpected Expenses
Don’t you just hate it when you have your money all budgeted out and then something comes up that you weren’t ready for? A home repair, the car breaks down, or there’s a sudden spike in your energy bill.
Paying it out of pocket would leave you broke for a while, but not paying the expense will put you further into debt. Securing a loan would allow you to pay the expense without being inconvenienced.
Reason #3 Short-Term Loans are Beneficial: Credit Card Interest or Fees
Depending on your credit score, the interest rates on outstanding balances on a credit card can be as much as 25% with late fees averaging $10-$50 per month.
If you need more time to pay down your credit card AND want to avoid late fees and added interest, securing a short-term loan to pay down the debt is ideal. As short term loans fees are likely less than credit card fees and interest, it makes economic sense to use the loan to pay the card off and then repay the loan as agreed.
Reason #4 Short-Term Loans are Beneficial: Education
Are you in college or have college aged children?
If so, you know that there are a lot of hidden and unexpected expenses you need to be prepared for. From lab fees and books to lunch and laundry, there are several expenses that you may not have the cash for upfront. Taking out a short-term loan can help you to get what you need while paying it off in a manageable timeframe.
Reason #5 Short-Term Loans are Beneficial: Start a Business
Thinking of starting a business, but don’t have the fund to get it up and running? Depending on what type of business you want to start, the startup costs can be pretty steep.
Instead of putting off your idea until you have the funds, you can easily take out a short-term loan to fund your business idea. Then, you can repay the loan at a convenient pace as you grow your business.
Short-term loans can most certainly be a cost-effective solution for any consumer. The trick to benefiting from it is only using it when you need, and borrowing responsibly. As long as you repay the funds as agreed, you’ll find that short-term loans can be those tiny life preservers you look to when things start going under.
Original article dated March 26, 2017
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