Last Updated on by Kevin Chidi
When you need some quick cash, a short-term loan can be a great option. Short-term loans are a type of loan that will be paid off in a shorter period of time. This means you’ll be able to pay off your loan quickly. However, a short-term loan can be beneficiary or not. Here are some pros and cons of short-term loans you should know before taking one.
What exactly are short-term loans?
Short-term loans are interest-free loans. This implies that you are not required to pledge property or other assets as collateral for your loan. Borrowers are only given unsecured loans depending on the results of checks on factors such as employment status, salary, and credit score.
short-term, loans for those with terrible credit, and installment loans are just a handful of the numerous names for short-term loans. Online short-term loans are often modest value loans of a few hundred pounds because they are unsecured and relatively high-risk for lenders. When taking out a loan from a standard payday lender, repayment may be due in a single installment on your following payday, or it may be spread out over a period of months, as with an installment loan.
Some short-term lenders may provide you with a line of credit that you can draw from as needed. Another option for a short-term loan that you should think about is a bank overdraft because it likewise provides you with quick access to money and flexible repayment options.
The benefits of quick loans
They have strict regulations.
As long as the lender is licensed by the Financial Conduct Authority (FCA) and registered there, they are subject to the rules for responsible lending. This requires them to verify your ability to pay back the loan and to act morally and properly toward borrowers who have repayment issues.
They are fast.
The fact that you can frequently obtain money very fast after applying successfully is one of the key benefits of short-term loans. Online short-term loans are commonly available, and if you fulfill the requirements, you can even receive the money the same day you apply if you match the lending standards.
They are easy.
It’s typically very easy to submit an online application for a short-term loan. You will need to provide some basic personal information and documentation of your financial situation. Lenders will inquire about your employment status and compensation. They might also request information about your residence and run a credit history check to see if you’ve ever had difficulties paying back bills.
If the lender requires further details before granting your loan, they will get in touch with you right away to make this request. Otherwise, all you typically need to do to get the money into your bank is complete the short online application form.
There are several options.
The time when we all had to rely on our local high street bank to give us loans is long gone. Consumers are growing comfortable working with online financial services providers who frequently provide more flexible terms and better rates than traditional banks since online borrowing has become the norm.
Options for people with bad credit
Even if your credit history is bad, short-term lenders may be willing to consider borrowing you. This is due to the fact that, in order to reduce the risks involved, they can keep loan values low and interest rates frequently fairly high. If the borrower can show they have a consistent source of income to repay the loan, some lenders will accept lending to them.
Problems with short-term loans
Higher rates of interest.
Interest rates on unpaid short-term loans may be higher than on some other loan kinds because they pose larger risks to lenders in terms of the probability that borrowers may default. Check the Total Amount Repayable (TAR) amount and the interest rate charged when selecting a short-term loan source.
When comparing short-term loans, the Annual Percentage Rate (APR), which is the legally necessary statistic published by many lenders, is almost worthless because it shows the cost of the loan as a percentage of the total loan amount for a full year. Comparing rates for a complete year is useless because short-term loans are almost never taken out over more than a few months.
Additional fees or penalties.
The majority of short-term lenders impose late payment fines and/or arrangement costs. To ensure that you are okay with these additional fees, it is imperative that you read the terms and conditions before applying. Additionally, if you want the flexibility of returning your loan early, check around for early repayment fees.
FCA laws now safeguard consumers from creating a debt spiral by regulating the total interest charged on short-term loans, despite the possibility of additional fees.
Some borrowers discovered during the peak of the short-term loan crisis that they were unable to keep up with their interest and charges, especially if they ever missed a payment. Now that caps are in place to safeguard consumers, you should be able to successfully borrow money as long as you don’t borrow more than you can afford to return. Even better, you might raise your credit score as a result.