Using Short Term Loans Responsibly

Kat Tretina

January 15, 2018  •  3 Minute Read

Loans

Short term loans have a bad reputation for creating a debt cycle that is difficult to escape. However, if used responsibly, short term loans can help out in an emergency or with an unexpected expense. There are number of options for those seeking short term loan possibilities.

Before entering into any loan, it is important to understand which loan is the best fit for your situation, and to look around for the best possible interest rate on the best possible terms. Short term loans, if used responsibly, can be a great resource in an emergency, without negatively affecting your credit score.

How Do Short Term Loans Work?

Short term loans are loans that are designed to have short repayment cycles. These types of loans are generally geared toward smaller amounts of money and are easier to obtain than a loan for a larger amount. Short term loans typically have higher interest rates than their long term counterparts, as they are designed to be have a fairly short loan duration.

Short term loans are a good option for those seeking to pay off small college fees, make a small home repair or tackle an unexpected expense.

Different Kinds of Short Term Loans

There are several different kinds of short term loans that are designed to fit a variety of different needs. When selecting a short term loan, it is important to make sure you are selecting a loan that best fits your needs and can be paid back in the requisite amount of time. Some of the most common types of short term loans include:

Installment Loans

Installment loans are taken out from a bank or other financial institution and paid back in smaller installments. Generally these loans are paid back through an automatic payroll deduction in smaller amounts until the loan and interest are paid in full. These loans typically have higher interest rates than their long term counterparts.

Payday Advance

Payday advances are a good option for smaller amounts of money that can be paid off in a lump sum, generally on the next payday. Payday advances are best used for unexpected expenses or emergencies that can be paid in full shortly after the loan is taken out. Some lenders require a payday loan to be paid in full on the date of your next paycheck, while others allow you to pick a date that fulfills your needs. It is important to shop around for the payday advance that fits your specific needs.

Title Loans

Title loans are the fastest growing loan for consumers in today’s market, with new options being added everyday. Title loans are secured loans with high interest where the borrower uses their car equity as collateral against the amount of the loan. Cars used in a title loan as collateral are fitted with GPS trackers, so they may be easily found. Should the borrower be unable to make their payments, the car may be repossessed by the lender.

How to find a Short Term Loan

Before entering into a short term loan, objectively assess how much money you actually need and are able to pay back to make sure that it is a good fit for you. Short term loans often target people with low credit scores who make under $40,000 a year, so it is important to be mindful of predatory lending practices.

Keep your loan payments realistic and firmly rooted in what you are able to make payments on. Be certain to borrow only what you need to cover an immediate crisis or emergency, and look for the best fit for your situation. Consult with your bank or financial institution for short term loan possibilities. A collection of additional lenders may be found here.

Paying off your Short-Term Loan

Making a plan to pay off your short term loan is an important step to ensure the responsible use of your loan. Short term loans are designed to fix small, short term issues and should not be used to pay off other loan debt or long term financial problems, as this often creates a dependence on the short term loan. If you are certain that you will have the money for repayment in the future, short term loans may be a good option for you. Consider setting aside money from each paycheck for the purpose of paying back your short term loan. It is crucial to your fiscal health to make payments to your short term loan provider that follow the terms of the loan. If the possibility of default of your short term loan looms in the future, consider other forms of payment negotiated directly.