A Short-term loan is a type of loan provided with little or no collateral and generally to be repaid within a year or two. These loans can often come with fixed repayment terms that the lender offer. The basic requirements include having employment, a minimum monthly salary, ID, and a bank account. Since these loans tend not to rely on credit history and more on your income, they have much higher interest rates and fees compared to other more traditional options.
Given the high interest rates and other charges, many people often consider whether they should apply for a Quick Cash Loan or not.
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Reasons for Avoiding Short Term Loans
It wouldn’t be incorrect to claim that short term loans are designed for your optimal convenience. They can prove to be helpful in times of emergencies when you cannot wait for days or weeks to get access to some quick cash. Since the credit score requirements are much more lenient, the barrier to entry is low however so interest rates are general much higher than personal loans.
Given these advantages, you should still have second thoughts about getting a Short term loan. In meeting your temporary financial situation, you could expose yourself to some financial risks. Some of the reasons to avoid these loans as much as possible are as follows:
High Interest Rates & Fees
Short term loans tend to have very high interest rates. When you need just a few thousand dollars, you could be paying an interest rate that is several times the rate on traditional loans. As mentioned above, low or no collateral and relaxation with credit score cause these types of loans to come with high interest rates, fees, and penalties. You should know a few more related things about this type of loan:
- Lenders typically expect the loaned amount to be paid back quickly. This can range from a year to even 5 years.
- You must be able to repay it within the agreed-upon terms.
- Being unable to pay on time will attract significant penalties.
Impact on Credit Score
There are multiple ways that applying for these Quick Cash loans can affect your credit score:
- Many companies can make a hard inquiry on your credit. This is going to make a negative impact on your credit score if you are not approved.
- If you miss a payment or fail to pay it back in time, there will be a significant negative impact on your credit.
Creating a More Difficult Financial Cycle
Again, it is reiterated that you should apply for a Short term loan only if you have the income to cover the repayment terms. Many borrowers often find that these loans haven’t solved the very problem that caused them to avail them. The high interest rates and fees can often worsen the problem.
Since you will be making a big amount in terms of the interest and fees, you will be left with less money the next month. So, you have to be careful with your financial planning to ensure your options are open.
It is recommended to use a Quick Cash loan only as a last resort to meet your emergency needs when you have no other alternatives.