Whether you’re facing emergency car or home repairs, medical expenses or whatever else, there are certain situations when you may need to come up with some serious cash in a hurry. If you’re lucky enough to have a decent amount of money saved away, this situation obviously shouldn’t be much of a problem. Nonetheless, anyone living paycheck to paycheck may suddenly find themselves facing potentially dire consequences if they can’t quickly find some way to get the money they need. In this case, a short term personal loan is definitely one possible option for getting some fast cash. However, the fact is that these loans aren’t always a smart financial decision. Therefore, it’s essential that you consider these following factors when deciding whether or not to take out a short-term loan.
Your Reason for Needing the Loan
One of the first things you need to carefully consider is the reason you need to take a loan in the first place. In this sense, what you need to look at is whether you absolutely need to pay whatever expense you’re facing immediately. The reason is that most short-term loans have a much higher interest rate than your typical mortgage, auto loan or other secured loans.
The fact that the majority of short-term loans are unsecured is a huge plus if you don’t have or aren’t willing to put up something as collateral, but the tradeoff is that you’ll usually end up paying a much higher interest rate that could range anywhere from 8.0% to 30% or more. Of course, this shouldn’t be an issue as long as you’re able to pay the loan back in full within the specified time period. If not, you could end up paying a huge amount in interest and fees. For this reason, most experts recommend short-term loans only be used in cases of dire need.
Your Ability to Repay the Loan on Time
The term short-term loan is generally used to refer to any personal loan with a maximum term of one year. Still, some of these loans may need to be repaid in six or three months, and there are also so-called payday loans that are designed to be repaid in full on the date you will receive your next paycheck. No matter what type of loan you end up choosing, it is vital that you pay extremely close attention to the terms of the loan repayment. Most short-term loans include huge penalties for lay repayment in addition to the high-interest rate, and these could potentially end up costing you more than the loan itself if you fail to meet your payment obligations on time. Furthermore, there is even the chance that the lender could place a lien on your vehicle or home should you fail to repay the loan and accrued interest on time.
The Terms of the Loan
The fact that there are so many different types of short-term loans is one reason that it is essential that you shop around. In this case, the idea is to try to find a loan with the best possible terms and a repayment schedule that you can easily meet. Depending on the type of loan you end up choosing, your credit rating could play a factor in the type of terms you qualify for. Either way, it is always a good idea to shop around so you can compare terms and choose the loan that offers the best value.
At the end of the day, there is no doubt that a short-term loan can be a good option when you need money in a hurry. This being said, not all short-term loans are equal and not all of them are a good deal. Therefore, the most important thing you can do is to make sure you fully understand the terms and the risks before signing on the dotted line.