Even though you know how to manage your money correctly, unexpected expenses can still be an inconvenience. If you have any difficulty acquiring fast funding, getting a short-term personal loan may be the right option.
A short-term personal loan is a convenient tool to manage unforeseen expenses, which can help your current financial situation.
What is a Short-Term Personal Loan and How Does it Work?
A short-term personal loan is an unsecured type of loan, which means you don’t have to pledge any collateral to get a loan. It is available to borrowers who have a regular income source. This type of loan is different from a traditional personal loan.
You’ll repay a traditional personal loan within several years, while a short-term personal loan needs to be repaid within a year or a few weeks, depending on the loan.
Getting a short-term loan will vary from case to case, especially on your creditworthiness. But, most of the time, the process goes like this:
- You apply for a short-term personal loan with a lender;
- The lender will check your credit status as well as other documents to assess your financial history;
- The lender will give you a loan offer with the interest rate and term included (short-term loan lenders tend to give answers fast);
- You will agree to the loan offer and receive the amount you asked. After approving your loan request, it is most likely for the lender to transfer the fund to your account within the day.
Types of Short-Term Personal Loans
It is most likely for you to hear about payday loans or short-term loans offered by traditional banks, credit unions, or direct online lenders about quick funding to cover unexpected expenses. Short-term loans for all types of lenders will depend on loan terms, loan amounts, interest rates, and other fees.
You can ask your local bank or credit union if they offer such a type of loan. Moreover, you can also research online lenders who offer loan terms you find convenient.
A payday loan is a type of short-term loan that you can apply for based on your income and credit status. This type of loan is also known as cash advance loan or check advance loan. Moreover, a payday loan’s principal is the part of your next paycheck.
Aside from helping you get immediate cash, many lenders offer payday or cash advance loans online. Some states in the US regulate the amount a borrower can ask for in a payday loan and how much interest rates lenders can charge. This is because some borrowers often fail to pay this type of loan, leading to a debt cycle. Hence, if you plan to get a payday loan, make sure you can pay the loan to avoid trouble with your finances.
Benefits of Short-Term Personal Loans
Short-term loans can be beneficial. Below are the advantages this type of loan may offer:
- Fast Cash: Short-term loans can help you get fast cash. It is not like other loans that banks offer, which usually takes a lot of time. That is why it is a good tool to help you cover unforeseen expenses that need immediate payment.
- No Need for Collateral: Since it is an unsecured type of loan, you don’t have to pledge any collateral to get your loan application approved. You can save yourself from risking your assets, such as your car or house when getting a loan.
- You Can Get it Even with Bad Credit: Some lenders don’t consider your credit status when approving for a short-term loan. You just have to look for a lender who offers short-term loans for bad credit. Hence, if you have bad credit, there is nothing to worry about as long as you have a regular income.
- No Long-Term Commitment: You don’t need to commit for several years when it comes to short-term loans. You can get the cash quickly and pay it back fast.
- Flexible: Lenders who offer short-term loans are flexible. They are willing to work with you until you reach a convenient loan offer. However, it is essential to know that this is not usually the case for payday loans.
Does a Short-Term Personal Loan Affect Your Credit?
A short-term loan has an impact on your credit. Like any other loan, your credit status will go down a few points if you have difficulties paying the loan.
If you plan to build credit, a payday loan is not the right choice because this type of loan is not reported to credit bureaus. But, some short-term loans are reported to credit bureaus and can help build your credit as long as you make proper payments.
Takeaway
If you can’t get your friends or family to lend you money for immediate purposes, you might want to consider applying for a short-term personal loan. Yet, it is vital to remember that getting quick cash also means repaying it in a short time. Hence, it is advisable to borrow the money you can afford to pay.