Money can’t buy happiness. Still, access to money during an emergency can save you lots of distress.
For those of us without the recommended six months of expenses set aside as emergency funds, short-term loans are lifesavers. The right short-term loan can help instantly get you out of a bind.
Do your research to find a loan you can afford with terms that won’t leave you with more problems than you started with.
What are Short-Term Loans?
Short-term loans are any loans required to be repaid within a year of getting capital. These loans are a temporary financial solution geared towards borrowers with money that’s just out of reach.
Short-term loans can come from a range of sources all with terms that vary based on lender requirements. No matter your emergency, take the time to research available short-term loan options before making a commitment.
It’s important to understand the fine print to be sure you can afford the loan.
What to Know Before Getting a Loan
Despite our best efforts, there are many moments where we just don’t have the cash to cover an expense. Before you complete your first loan application, here are some important things to consider.
How Much Can I Afford to Repay?
The cost of your problem shouldn’t always dictate the amount of your loan. Short-term loans are easiest to manage when you have a clear repayment plan.
To avoid a new financial emergency, consider borrowing below the amount you can repay. An additional strategy might be to split the total amount you need to borrow between a credit card and a short-term loan.
Credit cards offer longer repayment options which means you can put your efforts into repaying the short-term loan. You’ll get out of the loan quickly while boosting your credit.
Another question you might be asking is: Where do I get a good short term loan? One thing you’ll want to be sure is that you don’t get jacked on the interest rate. The best thing to do is shop around. In this case if you’re in Canada, I like smarter.loans. They a loan marketplace which gives you access to a wide range of personal loans.
What’s My Credit Score?
Before pursuing a short-term loan, review your credit score. Your credit score will determine the amount you can borrow and the overall cost of the loan.
A high credit score means lower payments and interest rates. Good credit also opens the door to a larger pool of potential lenders.
With bad credit, you might need to get creative to get the money you need.
You may need to borrow a higher amount than traditional lenders are willing to offer which means finding money from a variety of sources. With less than stellar credit, you can pursue alternative lenders online.
Alternative lenders should be fully vetted to help you avoid scams.
These loan terms may come at a higher cost but can be your savior when you have no other financial options. Everyone is entitled to a free copy of his or her credit report once each year.
Contact the three major credit bureaus to request a copy of your personal credit report. The three major credit bureaus are Experian, Equifax, and Transunion.
What’s My Target APR?
Your interest rate determines your payment amount. It’s important to do the math before applying to know how much your loan payment will be each month.
Also, consider how frequently the interest rate is applied. Interest compounded daily and monthly yields a higher payment than interest applied less frequently.
Some lenders are willing to negotiate terms or offer promotions to borrowers with good credit. Always request more information on promotions.
Your loan officer won’t always recommend ways to save, but this doesn’t mean you don’t qualify for reduced rates even if it’s just during an introductory period.
How Quickly Will the Loan Be Funded?
Emergencies, by definition, are unplanned. This means the short-term loan you apply for to cover an emergency needs to have a quick funding turnaround.
Waiting for weeks for approval is required for some loans, but not all. There are loan options with same-day and next-day funding available.
How to Use Short-Term Loans?
Short-term loans have few restrictions from traditional lenders. Most won’t question your usage after your loan is funded.
The best way to use a short-term loan is to repay large expenses that help reduce your overall debt. Here are a few of the top ways to use a personal loan:
Wedding expenses
Wedding expenses that would typically be repaid using a credit card can create debt that lasts for years. Using a short-term loan instead forces you to address the expenses more quickly cutting out months of high-interest rates and credit utilization.
Student Loan Debt
Not everyone qualified for ultra-low federal student loan interest rates. With private student loans, interest rates can be quite high causing your balance to snowball over time.
Refinancing your student loan debt through debt consolidation can be helpful. A short-term loan, like those offered by Quantum Capital, can be helpful when your student loan amount is low enough to be repaid within a couple of years.
Credit Score Boost
Short-term loans are helpful for more than just emergencies. Students with little to no credit history and anyone looking to purchase a home in the near future might choose a short-term loan to boost credit history.
Traditional short-term lenders report every month to the three major credit bureaus. On-time payments reflect well on your credit score and show your commitment to repaying debt.
When you go to apply for a home loan, this demonstration of responsibility can improve your chances of qualifying for the home you want.
Alternative Lenders
It’s important to be cautious when reviewing loan opportunities online. Short-term loan sites that promise guaranteed approval should be avoided.
Opportunities for borrowers with bad credit are plentiful, but these lenders should have a wealth of positive reviews along with a clean rating from the Better Business Bureau.
Always deal with companies that offer access to representatives by phone in case you have questions during the loan process. Find out how long they’ve been in business and whether they’re registered in your state.
A lender with a strong financial history will always vet borrowers. Skip any offers lenders who don’t ask questions about your finances.
The opportunities for short-term loans are growing online every day. Take your time to find a viable lender who you can build a relationship with over time as they are more likely to lend to you over and over again.
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