Short term loans are commonly sought by folks who either don’t qualify for conventional bank loans or who need a lump sum of money very fast. As the name implies, these loans are convenient for a short term solution but can become expensive if overused on a long term basis.
Short term loans are finance options that have fast turn around times with relatively short time frames for repayment. They are typically paid off within a year or less. These loans come with a series of pros and cons that you should become familiar with before committing to any of them.
There is a wide variety of short term loans that vary by the amount you can get, and how you can qualify for them.
Here are some of the most common varieties of short term loans out there:
Starting with title loans, you can get a lump sum of cash in exchange for the title to your vehicle as collateral. The amount of money that you can get depends on the value of the vehicle you choose to use for collateral.
Pawn loans are the exchange of valuables for cash at a pawn shop. You simply bring your items into the store and receive cash for the fair market value of the item.
With a payday loan, you can receive quick financing by agreeing to have the amount of money you borrowed, plus interest, debited from your bank account on your next payday. This type of loan is unsecured which means no collateral is required to obtain the funds.
An installment loan is similar to a payday loan but it offers a longer repayment term which allows for smaller repayments spread out over a longer timeframe.
When selecting a short term lender, it’s important to verify if the lender is a legal and licensed lender in your state. Some short term lenders are tribally licensed, or located overseas, which means they do not have to follow your state guidelines for rates and terms. Thus, these types of lenders can and do charge higher interest rates for their loans.
Many states also require a limit on the number of loans a person can obtain at one time to avoid overuse of the product. All the more reason to look for a lender that is licensed to do business in your state.
The short term cost of this type of loan can be very affordable if used correctly. For example, when you take out a pawn loan, you simply leave something of value as collateral and you’re able to obtain the cash you require very quickly.
If you don’t have collateral, a payday or installment loan is an unsecured type of loan that can help when fast financing is required to cover an unexpected expense or bill. Since no collateral is required, these loans do generally come with a higher interest rate.
You’ll have to weigh your options to determine if the convenience of obtaining financing within a very fast timeframe is worth paying a higher interest rate. There are numerous cases where it can be economically advantageous to use a short term lender.
When it comes to long term costs, these loans are an expensive form of borrowing when used over a long period. Again, each scenario should be weighed against the cost and benefits of a short term loan.
The bottom line is, don’t use a short term loan to play the lottery or purchase luxury items. These loans should be considered to be a viable option when you have unexpected expenses that you are unable to cover in the short term. While they do offer fast and easy convenience, sustained use over a long period of time will be expensive.
If you are looking for a short term loan, Lending Bear can help! Simply visit your nearest Lending Bear branch or apply online today to speak with one of our friendly and professional team members.