Many types of loan, such as mortgages and car loans, are for large amounts of money that you pay back over a long period of time.
Short-term loans are different from other types of loans. The loan amount is smaller and the repayment time shorter. They are easier to manage and you will usually be able to get a decision the same day. They are also available to people who may not have access to credit from banks and other high street lenders.
For many people, short term loans can be a useful type of finance for covering unplanned costs. For those with poor credit ratings and no access to credit cards or other mainstream credit, they can sometimes be the only option.
Sometimes we need some money to solve financial issues, but the unexpected costs are larger than our savings. Other times, several bills, fees or outlays land at the same time and are due before our next payday. In this instance, the upfront cost of a short term loan might be a better option than the combined costs of late fees and other penalties.
What’s the difference between short term loans and payday loans?
Payday loans are quite different to the short term loans provided by online lenders.
As the name suggests, a payday loan is an amount of money advanced by a lender until the borrower’s next payday. The lenders make a profit by charging a high rate of interest and having the borrower repaid the loan in one go. With a payday loan, you can’t pay the money back in instalments.
By contrast, a short term loan can be taken over a longer term and repaid in monthly or weekly instalments. The option to choose a repayment schedule that suits your circumstances can make paying back this type of loan more manageable and affordable.
The interest charged on a short term loan is typically lower than on a payday loan, although both types can carry penalties and charges if you don’t keep on top of your repayments.
What can short term loans be used for?
Just about anything. They shouldn’t be used to repay other debt, but can work well if you need a small lump sum, usually up to $1,000. Imagine you’re looking to replace your fridge or washing machine. The most cost-effective way to go about it would be to pick one you like, save up the funds and buy the thing outright.
However, if an essential appliance packs up and you’re left without the luxury of time to save up for it, a short term loan could be the answer. You don’t have the cash at the moment, but you could afford to pay back money you’ve borrowed over several months.