Short term loans can include cash advance loans and payday loans. These types of loans provide quick cash in an emergency, and with simple minimum requirements, most people qualify for financing. But before completing your application for a short term loan, it pays to weigh the pros and cons and understand how these loans work.
Pros of Short Term Loans
Collateral
Cash advance and payday loan companies that issue short term loans do not require collateral. If applying for a bank personal loan, you will need some sort of collateral, such as a vehicle title, home equity or other personal property. Without collateral, the bank might deny your application. It’s a different story when applying for a short term loan. You can walk into any loan company, complete an application sans collateral and have cash deposited into your account within one business day.
Easy loan requirements
The requirements for a short term loan are minimum. Loan companies vary, but you need to be at least 18 years old, employed and have an active bank account. The loan process isn’t long and you can complete an application online. Short term loans are designed for emergencies and quick processing is typical with this type of financing.
No credit check
Apply for a traditional bank loan and expect the lender to check your credit report. They’ll check the balances on your outstanding accounts and evaluate your payment history before approving your loan application. Short term loans are much simpler and do not involve credit checks. You can obtaining financing with bad credit and no credit history.
Cons of Short Term Loan
High interest rates
Because short term loans do not require collateral or credit checks, they feature higher rates than traditional bank loans. Loan companies take a chance with every applicant and there’s a greater risk of default. Rates are higher to compensate for this risk. Rates vary by loan company and state, but borrowers typically pay about $15 to $20 per every $100.
Repayment terms
You don’t have several months or years to repay a short term loan. These loans are due in full within 14 to 30 days. The loan company deducts the amount due plus interest directly from your bank account on the due date. If the funds aren’t available and you default on the loan, you pay additional interest and late fees. Fees incur until you pay the balance. Some loan companies offer extensions which alleviate late fees, but not interest.
Loan cap
There are limits to how much you can borrow with a short term. Take out a traditional bank loan and you can receive several thousands of dollars, but short term loans differ. The majority of loan companies cap loan amounts between $500 and $1,500.