A short term loan is a loan that can be taken to fulfil a business or personal need when traditional lines of credit prove difficult or impossible to get. It’s an excellent solution when you’re suffering from temporary cash flow problems and can be a quick source of finance when you’re looking for immediate help.
The growing influence of the internet has led to the emergence of online short-term loans that can be accessed through apps and finance websites but you need to choose the best one carefully. Short term loans derive their name from the nature of the credit offered. The payment structure of the loan involves shorter periods of time with no extended commitments.
Short term loans can be fully repaid on the same day or staggered into stages, with the due date generally set within a year at most. The interest accrued can also depend on how fast the loan is repaid.
How short term loans work
Collecting adequate information about short term loans is crucial when deciding whether to apply for one. There are many reasons why a short term loan would suit your particular needs, with traditional lenders like banks lacking some of the benefits offered by short term financiers. Contrary to popular belief, short terms loans don’t always have to be a last resort and can represent a better option overall when compared to conventional credit.
Most short term loans in the market work in a similar manner, involving a quick and straightforward process. The different stages of acquiring a short term loan include:
After identifying a viable lender, the first step in getting a short term loan involves the initial application process. Here you’re required to fill out various details about yourself and your financial requirements to be submitted for consideration. The kind of information requested can include your name, contacts, employment or income status and the reason behind your loan application.
Once you have submitted the needed information, the lender will then use the details provided to develop your loan limit (that is, the maximum amount of money you can borrow). Loan limits can depend on several factors, including your expected income, credit background and perceived reliability in a financial sense. Different people receive different loan limits, offered at the lender’s discretion.
Approval and specific amount request
The major factor that influences your approval for a short term loan is the results of your background check. Luckily, short term lenders are not as strict as traditional avenues and use different methods to determine your suitability for a loan. If you have bad credit, you can still get a short term loan if you meet other requirements, like a steady source of income.
Once your application has been approved, the next stage involves requesting a specific amount within the loan limit given. If you’re given a loan limit of $1000, for example, you can choose to borrow any amount that doesn’t surpass that sum. After deciding on a particular amount, you’ll need to submit the request to the lender.
As long as you have been provided with a loan limit, the hard part has passed and you are guaranteed to get the amount requested (as per the guidelines mentioned above). The last issue to be considered is the structure involved with repayment. In most instances, the lender will set a certain due date for the total clearance of the loan.
The kind of payment schedule offered will depend on the particular lender involved. Some short term loans are based on a strict due date that requires you to pay the whole amount by a certain period. In other instances, you might be expected to pay a certain amount at particular stages. Other short term loans have an open-ended due date that allows you to pay off the loan at your convenience. In the last case, the longer you take to pay the loan, the more interest you will accrue.
The money requested is usually received almost immediately after approval, making short term loans an ideal option for those who need cash straight away. Some lenders offer a variety of options with regard to receiving the money, while others might focus on one common, publicly accessible medium to deliver the money.
Important things to consider
The most important thing to consider when taking a short term loan is your ability to pay back the amount requested. In some cases, the maximum limit offered might represent an attractive figure, but it’s never wise to borrow beyond your means. Debating how easily you can pay back the money when considering the amount you should request is a crucial part of the decision making process.
It’s also wise to pay attention to the type of interest that comes with the loan option chosen. A good way of determining whether a loan is worth it is by calculating the final amount you would owe the lender at the end of the due date.