Let me say that sometimes, loans are inevitable, given that emergencies will never stop occurring. We live in a world full of uncertainties, and of course, that’s one reason why the majority will always take short-term loans.
What are Short-Term Loans?
When I talk of short-term loans, I mean the kind of loan you take and repay after a short period. Short-term loans will always be an excellent fit when dealing with an unexpected turn of events.
For example, can you imagine your car breaking down in the middle of the month, with no salary and no cash? At this time, instead of dumping your car to wait for your paycheck to chip in, you can take a short-term loan.
Most short-term loans require you to pay them off from two weeks up to one year, hence the name, short-term.
Types of Short-Term loans
- Payday loans. These are loans that you can repay during your next payday, just like the name suggests. Unfortunately, payday loans usually have very high interest rates because the lenders don’t run credit checks.
- Installment loans. You can also repay short-term loans in the form of small installments spread through a specific period, mainly not more than 18 months.
- Lines of credit. With lines of credit, the borrowers take home a small amount of loan, not exceeding their credit line. The lender charges interest on the borrowed money and not the whole credit limit. Often works like credit cards.
- Invoice financing. This kind of short-term loan involves the borrower using unpaid invoices to take a short-term loan. The lender will be receiving payments pus the interest.
Now, let’s look at what you have to benefit from once you take a short-term loan.
1. Lower interest
Since you will pay short-term loans within a short period, the accumulative interest will be lower than those long-term loans. But, conversely, the longer the payment term, the higher the interest you will pay, and the reverse is true.
However, some short-term loans like Payday loans usually have very high interest rates starting from 400%. Therefore, you should always be vigilant while choosing the kind of short-term loan you want to take.
2. Short-term loans are simple to apply for
Most short-term loan lenders do not require many details from you, making the application process more straightforward. You can also apply for short-term loans using online apps or websites.
Online application of short-term loans saves you the time of moving from one bank to another looking for money to renovate your house.
3. Lenders approve your loan application faster
Indeed, long-term loans can take days to weeks for the lenders to approve your application. On the other end, short-term lenders approve your application within one business day.
For example, lenders in VivaPayday loans can even approve your loan and be able to receive your funds within 2 minutes.
Quicker approval of short-term loans makes them suitable to cover emergencies. So if you need emergency cash to deal with personal issues, consider taking short-term loans.
4. Most short-term lenders do not conduct credit checks
Covid-19 brought about many challenges, such that those who had loans had to default them. Many people who have bad credit scores did not wish that to happen, but it happened anyway. Having a bad credit score will many times find closed doors when you may want some funding.
However, some lenders can listen to you, even with your bad credit history or no credit history at all. Mostly, those who give you a loan without credit checks will always give you short-term loans. For instance, a payday loan lender will only need you to prove that you are employed, and you will get a loan of up to $1,000.
5. You will have a chance to improve your credit score
Due to their short-term nature, short-term loans can help you to rebuild your credit score. If you pay the required loan amount at the agreed time, your credit score will be improving. The majority of the short-term lenders will update your credit behavior on all or one of the three national credit bureaus.
So, if you are responsible for your repayment, there is no doubt that your score will improve. And you will be able to receive long-term loans because it’s nearly impossible to obtain a long-term loan while having a bad credit score.
The bottom line
Short-term loans are the best in terms of covering emergencies and building your credit score. In addition, taking a short-term loan is an excellent way to stay out of debt and keeping your name clean.