How to Take Advantage of Short-Term Loans to Cover Surprise Expenses
So, you’ve just been struck with an unexpected financial hardship that you never saw coming. If you need money right away, one option you’re likely considering is a short-term loan. But what are your options, and how can you best use these types of loans?
Types of Short-Term Loans
Two of the most common types of short-term loans are payday loans and car title loans. The standard repayment period for a payday loan is two weeks to a month, depending on the frequency of the borrower’s paychecks, while the standard repayment period for a title loan is a month. That’s much shorter than the terms of most other types of loans, which are typically at least 1 year in length. But the upside is that they are usually quickly available no matter where you are. So whether it’s an installment loan Chattanooga or title loan Kickapoo, you’ll have some options.
Payday Loans
Payday loans are unsecured personal loans, which means there’s no form of collateral attached. You write the lender a check for the amount of the loan, plus whatever fees they charge, and they issue you the loan. When you get your next paycheck, the lender cashes the check that you wrote.
Car Title Loans
A title loan is secured, as you use your car as collateral on the loan. The value of your car also determines how much the lender will issue you for the loan. You keep your car throughout the term of the loan, but if you default on your loan, the lender can repossess and sell it.
Using Short-Term Loans
There are a few important things to understand about short-term loans:
- They have very high interest rates, which are typically higher for payday loans than for title loans, since payday loans don’t have any collateral.
- If you can’t pay your loan off by the payment due date, you can usually roll it over by paying only the interest, starting a new repayment period with new interest charges.
- They’re the fastest loan options on the market, and you’re often in and out of the lender’s office in less than an hour.
- Minimum lending requirements are low, and lenders will typically issue loans to anyone with steady income.
The number-one rule when it comes to short-term loans is that you have a clear plan to pay back what you borrow. The reason that borrowers end up trapped in a cycle of debt is because they take out short-term loans without knowing how they’re going to pay them off, and then they’re only able to repay their interest charges, not the loan principal. They just keep accumulating more interest charges until they’ve paid much more in interest than they originally even borrowed.
Considerations For Short-Term Loans
One of the big selling points with short-term loans is how quickly borrowers can get them. Even so, it’s smart to take a bit of time before you apply considering how you’re going to repay your loan. Ask yourself:
- Why do I need this short-term loan?
- With my current income and expenses, will I be able to pay back the loan in full by the due date?
You may be dealing with a financial hardship that you don’t have the emergency fund or the credit to cover. If that’s the case, a short-term loan can be very helpful, but only if you’re able to pay it off on time. Carefully analyze your income and expenses by making a budget. Put your short-term loan payment in your budget and see if you can make it work, either by picking up some extra shifts at work or cutting down on unnecessary expenses.
While short-term loans sometimes get a bad rap, sometimes they can be just what you need to get back on your feet. It’s important to realize that a loan is always a temporary solution that you must pay back, and with a short repayment period, that process is accelerated. That’s why you need to be thinking about how you’re going to pay back your short-term loan well before you fill out the application.
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