When you think of types of loans, you may most readily consider loans that are meant to help buy a house, start a business, or make another kind of huge purchase. These loans typically take years to pay back. That isn’t the only type of loan available to you, however. In fact, there are a ton of loans that are meant primarily to act as a bridge loan to help you or your small business make ends meet until additional resources become available.
If you are able to use your short-term loan responsibly, they can be incredibly useful. They can help you make a necessary purchase or deal with a financial emergency. They can also be used to improve your credit score if you borrow and pay back your loan responsibly. Before we go over the pros and cons of short-term loans, however, let’s go over several types of short-term loans exist.
Short-term loans from an online lender
If you are looking to take out an unsecured lender, why not look to the digital age to help you get the financing you need. These loans can be available to you in as little as 24 hours. They function much like a traditional loan, but instead of payments being stretched out over weeks, months, or years, they can be due in days.
Typically, you can get a short-term loan from $2,500 to $250,000. Terms can range from a number of weeks to approximately 18 months. In order to qualify, you are going to have to have a strong credit history. IF you qualify, you can expect to have an interest rate starting at about 10 percent.
A payday loan are very short-term loans that typically last no more than a few weeks. They’re typically through payday lenders. While payday lenders have generally operated out of storefronts, some payday loans are now operating online as well. Payday loans work best for people who need cash quick. The reason why it’s best for people who need cash fast is because the entire application process can be completed in a matter of minutes.
In order to qualify, payday lenders will verify your income and a bank checking account. They verify the income to determine your ability to repay. But the bank account has a more specific purpose.
When your loan is approved, the funds are deposited into the verified bank account. And then, the lender will require that you write a postdated check in payment of both the loan amount and the interest you have accrued during the life of the loan.
Car Title Loans
If you are looking for a short-term personal loan, but do not have the credit score necessary to qualify for a personal loan. Car title loans can be a great option. The way that they are an option for people with sub-prime credit scores is because they are secured loans attached to the value of your car. These loans typically range from $100 to $10,000, though the loan amount can go much higher if the value of your car and the equity you have in your car.
The payment terms of these loans can last just days, but the most common term for car-title loans is one month. These types of loans are meant to help you make ends meet during a period of financial insecurity. Keep in mind that interest rates for car title loans are quite high so you certainly want to pay them off as quickly as possible as to not accrue huge amounts of interest expenses.
Pro and Cons
So now that we have covered several types of short-term loans, let’s go over the pros and cons of short-term loans in general.
The major benefits of short-term title loans include fast distribution of funds, extensive availability across the country. For short term loans such as car title loans and pawn shop loans, little to no credit score checks or background checks are necessary. While unsecured personal loans do require credit checks, secure short-term loans are specifically tailored towards people who deal with poor credit history. While they come with a certain amount of risk, they are a great option for people who would have a hard time getting approved for a personal loan from a bank, credit union, or online lender.
Another benefit is that if you are able to responsibly borrow and pay back your loan, you could help yourself in the long run by massively improving your credit score.
The major cons of short term loans are partly due to the fact that they are so easily accessible. Since short-term loans are often a last resort for people in a certain amount of financial trouble, borrowers can be subject to pretty high interest rates and added fees.
Short-term loans can be for any length of time, but on average they last just a couple of weeks to a couple of months. Interest rates can be high and if a borrower defaults on their loan, the run the risk of losing the collateral they used to obtain their loan such as a car, a house, or personal possessions they used at a pawn shop.
If you have other financial options, it is sometimes important to consider them. While short-term loans can get you out of a short-term jam, they can also lead to long-term financial issues if you lack the finances and responsibility necessary to pay off loans such as these.
Now that you know what kinds of personal loans are available to you, and what the pros and cons attached to those types of loans are, you can begin to start looking for what kind of loan works best for you.