If you’re considering a short-term loan, chances are you have significant financial needs. You may be dealing with an unexpected expense or need to cover a cash flow gap. Whatever the reason, it’s important to be informed about the potential benefits and risks of taking out a short-term loan before deciding.
In this article, we’ll review five key facts everyone should know about short-term loans so that you can decide whether they’re right for you.
Let’s get started.
What Are Short-Term Loans?
Short-term loans are a type of loan that generally have higher interest rates and shorter repayment periods than traditional loans. They can be used for any purpose, such as debt consolidation, car buying, wedding expenses, etc.
Repayment terms vary significantly between lenders but typically require full repayment in one lump sum at the end of the term or monthly payments (installments) over time.
What Are the Benefits of Taking Out a Short-Term Loan?
There are several benefits, including:
Access to Quick Funding
Short-term loans provide access to quick funds, which is beneficial in times of financial need. This means that money lands in the borrower’s bank account more quickly than a personal loan or business loan.
No Collateral Required
Short-term loans are a type of unsecured loan that requires no collateral, making them an excellent option for those who may not be able to secure traditional financing.
They Can Help You Build Credit
If you make all of your payments on time and in full according to your repayment schedule, taking out a short-term loan can help you build or repair your credit score. This makes it easier to qualify for more favorable rates on traditional loans in the future.
5 Facts About Short-Term Loans Everyone Should Know
Here’s what you need to know:
They Are Often For Smaller Amounts
Most short-term loans are for smaller amounts, typically ranging from $100 to $5,000. These loans can be used for any purpose but are usually taken out for emergency expenses or when someone doesn’t have access to more traditional forms of lending.
They Are For Short Time Periods
As the name implies, short-term loans are for a short period of time. The repayment terms vary from lender to lender but generally range from one month to three months.
They Can Have High Interest Rates.
Because they are typically repaid in a shorter period of time, short-term loans often have higher interest rates than other types of loans. This means that you could end up paying back more than you originally borrowed. This is particularly true for payday loans and merchant cash advances.
They Can Carry Additional Fees
You may be charged additional fees if you cannot repay a short-term loan on time. This can make it even harder to repay the loan, and you could end up trapped in a cycle of debt.
They Can Impact Your Credit Score
Making late payments or defaulting on a short-term loan can negatively impact your credit score. This can make it more challenging to get approved for loans in the future.
Who Offers Short-Term Loans?
Short-term loans are available from various lenders, including traditional banks, credit unions, online lenders, and payday loan companies.
Online lenders tend to have faster application processes and rapid access to funds but may come with slightly higher interest rates.
Banks and credit unions often have lower interest rates but are far more strict about who they lend to. In addition, getting the loan can take much longer.
Payday loan companies typically have high interest rates compared to other lending options and should be avoided unless absolutely necessary.
Be sure to research all available lenders before committing to a short-term loan to find the best fit for your financial needs.
How Do Interest Rates Work With Short-Term Loans?
Interest rates for short-term loans can vary significantly depending on the lender. Generally, interest rates are higher than traditional long-term loans because of the shorter repayment periods and lack of collateral.
Some lenders may offer fixed rates, meaning the rate will stay the same throughout the course of the loan. Other lenders might offer variable rates, meaning the interest rate could fluctuate over time based on economic conditions and other factors.
Be sure to understand all terms and conditions before committing to a short-term loan so there are no surprises later.
Do I Need a Good Credit Score to Get a Loan?
Generally, yes. Most short-term lenders will require a credit check and good credit to qualify for the best terms and rates. Those with a lower credit score may be able to secure a loan but might face higher interest rates and more stringent repayment requirements.
Additionally, some lenders may use alternative information, such as bank account activity or employment status, to make their determination. Shopping around and comparing different lenders to find the best loan for your financial situation is essential.
What Should I Know Before Taking Out a Short-Term Loan?
There are a few key things to know about short-term loans before taking one out:
- Short-term loans are typically smaller in amount than traditional loans and are meant to be repaid within a shorter time frame, usually within a few months.
- Because they are shorter in duration and typically have less stringent requirements, short-term loans can be a good option for those who may not qualify for traditional loans.
- However, because of their shorter repayment timeline, short-term loans often have higher interest rates than traditional loans.
- Finally, some short-term loans, like payday loans, can do more harm than good and should be avoided.
What is the Most Common Short-Term Loan?
The most commonly used short-term loan is the payday loan. Payday loans are typically between $100 and $5,000 and can be used to cover unexpected expenses or emergencies. However, payday loans should be avoided due to their sky-high interest rates!
Instead, here at SkyCap, we offer short-term loans for lenders with all types of credit. We offer competitive interest rates and often approve loans in less than two hours.
Final Thoughts
In summary, it’s essential to understand all the facts about short-term loans before applying. Knowing the terms and conditions of the loan, researching different lenders, and exploring alternative funding options can help you make a more informed decision that is best for your situation. Be sure to speak with a financial advisor if you have any questions.
If you’re looking for a Canadian lender that provides installment loans to people with low credit or poor credit, look no further than SkyCap Financial. We offer competitive interest rates and loan terms. Apply today!
