What are Short-Term Loans?
Short-term loans are a type of loan offered by online lenders that feature instant approval.
These funds would be used in cases where you have some personal expenses that need immediate attention. The loans are sometimes called payday loans, instant loans, or cash advances.
This is because the lender would only need to know about your employment status and income before giving out their approval decision. There will usually not be any credit checks involved with short-term loans.
This can come as a relief for those who have bad credit scores.
Types of short-term loans
Short-term loans usually come in two types: Payday Loans and Cash Advances.
A payday loan is meant for those who need funds to be transferred into their account before their payday, which would ensure that they have cash on hand at all times. This type of short-term loan is ideal for those who expect an expense such as hospital bills or car repairs.
Uses of short-term loans
Short-term loans are often used by those who need emergency funds for several personal reasons. Students would also find this useful when they need extra money for school projects or fees. Before getting approval, the borrower only needs to be employed and earn a monthly salary with these loan types.
If you need immediate cash but cannot wait until payday, then short-term loans might be the right choice for you!
Requirements for short-term
Applying for short-term loans is easy! But borrowers should meet the following requirements:
- You must be employed and earn a monthly salary. If self-employed, you will need to provide proof of your income.
- You must be at least 18 years old and above.
- Has an active bank account opened for more than three months?
- you must provide an email address and telephone number
Steps when applying for short-term loans
- Fill up their application form and submit it together with other required documents such as an identification card, payslip, and so on.
- You will receive their decision shortly after submitting your application! Simple, right?
Who can apply for short-term loans?
Anyone who meets the requirements listed above can apply for short-term loans. These are
- If you need a loan and do not know where to start
- if you do not qualify for a traditional bank loan
All applicants are assessed based on their employment status and monthly income. Those with low credit scores but no collateral will still be able to enjoy borrowing at affordable rates.
Advantages of short-term loans
There are many advantages to note when taking out a short-term loan! These include:
- Hassle-free application – you need your identification card and proof of income before filling up an application online or offline, and you will receive their decision shortly after.
- The shortest approval time. This makes it very suitable for those whose expenses need immediate attention and who cannot wait until payday!
- No credit checks are required – which means that even if one has a bad credit score, they can still apply for these loans if they have monthly income to prove it! Amazing, right?
- Flexible payment plans – borrowers only need to pay back the amount borrowed plus interest within 2 weeks. If their budget is tight, they can also pay their monthly installments for 1-3 months.
Disadvantages of short-term loan
- Interest rates are high -this type of loan is considered a short-term loan, which means that the interest accumulated is very high. This makes it difficult for borrowers to settle their monthly installments, especially if they have many expenses to deal with.
- Additional fees can apply. Some financial institutions apply an additional fee other than the interest if the borrower decides to pay their monthly installments over 1-3 months instead of 2 weeks. This leaves them feeling frustrated and stressed because even though they are paying down their debts, more money is added to their overall repayment amount!
- Flexible payment plans come with an additional fee-This often leaves borrowers feeling frustrated because even though they are paying down their debts, more money is added to their overall repayment amount!
Important considerations before applying
Interest rates are high.
Many borrowers who have accumulated debts feel frustrated and stressed because even though they are paying down their debts, more money is being added to their overall repayment amount!
Don’t borrow if you don’t need to
Self-control is important when it comes to personal finance management. Short-term loans should only be used when necessary because of their high-interest rates. It is better to find out all your options before making this important financial decision.
Alternatives to short-term loans
- Ask for a personal loan from your bank.
- Try to negotiate with your creditors by paying part of the amount or settling them down so that you can pay off one debt at once
- Get help from friends and family.
- Consider installment loans if you are looking for long-term solutions to repay your debts.
Frequently asked questions on short-term loans
What is the interest rate on loans?
Short-term loans are more expensive than traditional bank loans due to their short repayment period of 2 weeks. The interest rates usually range from 30% – 100% APR, depending on your credit rating, loan amount, and financial institution.
What is a short-term loan?
Short-term loans, also known as payday loans or cash advance loans, are temporary loans to assist people who need money urgently. They are helpful for emergency car repairs, electric bills, and other unexpected expenses. Repayment periods range from 1 day to 4 weeks.
Are there any fees involved when applying
Unfortunately, since they work based on a short repayment period, lenders will charge borrowers an additional fee or interest other than the amount borrowed. Some financial institutions apply an additional fee. This leaves them feeling frustrated and stressed because even though they are paying down their debts, more money is being added to their overall repayment amount!
How does a short-term loan work?
The process of applying for a short-term loan is simple – you can either do it online or visit your lender’s office personally to get approved. Usually, there is no credit check involved, but in some cases, if your credit score isn’t high enough, you might end up not getting approved for the loan.
What is the minimum age one needs to be to apply for a short-term loan? Most lenders that offer payday loans require borrowers to be 18 years of age. Some financial institutions also do not allow students below 20 years of age to take out this type of loan.
Is it possible to borrow again before paying my first loan?
No – most lenders will not allow borrowers to apply for additional loans until they fully pay the previous ones, so plan before borrowing money. What is the interest rate on short-term loans? The interest rates vary among different providers.
Kimberly Chantal Parkes is a former contributor to Rixloans. Kimberly Chantal is a freelance copy editor and writer with a specialization in personal financial planning. After having graduated from Kansas State University with a bachelor's degree in journalism, she began her career in media wearing many hats for community newspapers within the Kansas City area: writer as well as copy editor, photographer and coffee runner among other things.