The Pros and Cons for Short-Term Personal Loans

The Pros and Cons for Short-Term Personal Loans

When there’s an emergency and you need money now, there aren’t many options. Ideally, everyone would have enough money in savings to cover an emergency, but that doesn’t always happen. Even those who save might not have enough if they just used some of their savings for a previous emergency. For those who don’t have enough money in savings to cover the emergency situation, a short-term loan might be their best option. It’s important to be aware of the pros and cons before obtaining one. This knowledge lets the borrower be confident that they’re making the right decision before signing the dotted line.

Pro: Easy to Obtain

Short-term personal loans are very easy to get, and most people are eligible. In fact, there are minimal requirements for most short-term loans. Borrowers who have poor credit scores aren’t excluded from being able to obtain the loan, so long as they have a job and can make the payments.

Before applying for a short-term loan, look into what is needed to be approved. It’s a good idea to do this ahead of time, so it’s easier to make sure all necessary documents are on hand before beginning the application process. The application process itself is typically short, so it won’t take long to fill out the forms online and get the money you need.

Con: Possibility of More Frequent Payments

Since short-term loans don’t last as long, it’s possible there will be payments required more frequently. In most cases, short-term loans have payments related to the payday of the person obtaining a loan. If someone is paid weekly, they may have a weekly repayment plan. This is designed to make sure the payments are spread out, so there isn’t a significant strain on any one payment during the month.

Though this is a con, it could work for the borrower. It’s easier to plan the repayments when they’re tied to the borrower’s paychecks, and it could mean a smaller amount of money from each paycheck goes toward the loan. Prepare for the frequency of repayments by looking into the options offered by the lender. They will often provide information about how frequently repayments are expected.

Pro: Fast Approval

One of the biggest benefits of short-term loans is that they are loans with fast approval rates. Borrowers don’t have to wait long to find out if they’re approved, which means they don’t have to wait long to receive the money they need. Depending on the lender, it may be possible to get approval the same day or on the next business day. Once the borrower is approved, the lender will send them the loan.

The fast approval makes short-term loans a highly attractive option for those who are dealing with an emergency and can’t wait long to find out if they can get the help they need. If someone’s vehicle breaks down, they can’t go without a vehicle while they find out if they can get enough money to pay for the repairs. Instead, they can get a short-term loan to fix their current vehicle, and worry about buying a new one, if it’s needed, later.

Con: Late Fees Can be High

As with many financial products today, late fees can be excessive. This does depend entirely on the lender and whether they offer any grace periods for late payments. It’s important to be aware of the late payment fees before obtaining the loan, especially if the borrower believes they may end up making one or two late payments.

Late fees can be high, but they are also easy to avoid. Those who obtain a short-term loan will want to consider making their payments as early as possible. This way, if there is an issue with the payment, it can be sorted out before the payment is late. Borrowers who pay on time regularly and make payments early just in case are less likely to have a late payment, so they don’t have to worry about late fees.

Pro: Shorter Payment Plans

Short-term loans have payment plans that are typically less than 18 months. For someone dealing with an emergency or trying to repay debt quickly to avoid further late fees, this could be vital. While larger long-term loans may have years worth of repayments, the borrower for a short-term loan can have the whole loan repaid fast.

The length of the loan will depend on the amount borrowed, the length offered by the lender, and the size of the payments made. Borrowers who want the lowest possible repayments may find they end up with a longer repayment period compared to those who can pay a little more on the loan each month, depending on the options provided by the lender.

Con: Can Have an Impact on Credit Scores

While this isn’t restricted to just short term loans, it bears mentioning.

Short-term loans, like other loan options, can have an impact on the credit score of the borrower. This is a con if the borrower makes late payments or fails to completely repay the loan, and the impact on the credit score can last a long time. However, this doesn’t have to be a con. For responsible borrowers who consistently make on-time payments, it’s possible the short-term loan can help boost their credit score.

Borrowers should be aware of whether or not the lender reports late payments to the credit agencies. If late payments are reported, the borrower should make sure they do not make any late payments so they can avoid lowering their credit score. For borrowers with a low credit score, on-time payments that are reported to the credit agencies can be beneficial.

Short-term loans, like any loan product, will have pros and cons. However, for borrowers who can be responsible and consistently make on-time payments, a short-term loan might be the perfect way to avoid credit card interest and pay off credit cards in full or handle an emergency situation that has come up. For today’s borrowers, this could be a huge help and could make it easier to deal with the financial situation before it becomes worse.