How to use a short term loan to meet all your expenses – Payday loan
Unfortunately, life is not always easy and it is difficult to predict what will happen to us later. Most of us have a basic idea of the situation in the coming years, but the fact is that anything can happen. Some expenses are too big to justify emptying all your savings. So, in an emergency, it’s always good to know what financial options are available to help you. Well, if you have just experienced an emergency and need some quick cash, an installment loan can be a healthier way to deal with it than to ask for a payday loan. In this regard, even if you do not yet have an emergency that requires financial attention, it can be very helpful in the future to know more about short-term loans, just in case.
What is a short term installment loan?
Generally, a “short-term” loan refers to the process of borrowing a moderate amount of money with the intention of repaying it in a relatively short time, usually between one and three years. Loans are granted by different types of creditors, such as banks, credit companies and subprime lenders (for those who are not eligible in a bank). There are a variety of general loans of all shapes and sizes. However, short-term loans are generally $ 5,000 or less. You can use them to cover all the expenses you want.
In fact, you can use a short-term loan for almost any type of emergency, such as:
- Repairs to your home (leaking roof, damaged appliances, etc.)
- To finance a new vehicle when yours breaks down.
- Repair of your current vehicle (accidents, mechanical procedures, etc.)
- Medical expenses (prescription drugs, dental expenses, etc.)
- Grocery and other household items
- You finance your education or someone else’s education (tuition, school supplies, etc.)
What are the interest rates for a short term loan?
Before moving to the process of obtaining a short-term loan, it is very important to learn how the payments themselves tend to work. Always consider that lenders are companies like any other and that they must make a small profit from the current exchange. As a result, in addition to each loan payment, a certain percentage of interest will also be charged, which varies from lender to lender. While these interest rates are often lower than those of a typical payday loan, make sure you understand how your interest rate will affect your finances before you accept it. If your interest rate is too high, but you do not realize it, you may pay a lot more than you expect.
For example, if you have determined that your usual lender is not offering a sufficiently reasonable interest rate for short term borrowing, you can always shop until you find one. Remember, banks are not the only lenders in the city.
The loan application procedure
This brings us to our next section, which deals with the loan itself. All potential borrowers must go through an application process to determine their solvency level, the details of which also vary from lender to lender. For example, banks and other traditional financial institutions have a very strict set of guidelines to which they must adhere with regard to their borrowers. If a potential client has low credit, a history of debt problems or an unstable source of income, their chances of qualifying with a bank decrease with the amount of the loan they need. However, there are other types of privately financed lenders that specifically target borrowers who do not have good credit or high incomes. So, if you do not get approval from a bank, know that there are alternatives. Overall, all lenders want to be certain that their clients are able to repay them, even if this means reducing payments or lengthening the payment period.
Thus, as we mentioned, each lender’s application and approval process will be different in one way or another. Nevertheless, some general factors that apply to most countries include, but are not limited to, a borrower’s credit score, credit history, income, employment history. etc. of debt, if you have more serious cases like consumer proposals and bankruptcies in your past or if you have already had an account that has been assessed. If your lender believes that your payments may not be able to be made and that you will repay your loan in full by the date indicated, he will give you the money.
So, when you need your short-term loan, you can simply go to your lender and fill out an application, in which you will tell them the amount of your loan. If your application is approved, you will receive the money into your bank account and then refund it in regular installments over an agreed payment period. As a general rule, these payments are made on a weekly, bi-weekly or monthly basis until full payment of the loan.
What happens if I can not make payments?
This is where borrowers need to pay close attention to the loan money they have been given. Since short-term loans often involve relatively small amounts, many borrowers do not consider the financial implications involved. They do not take into account factors such as interest rates and may become more debt-related because of this. So if you have a loan, but you can not make your payments on time for whatever reason, we are talking about “default”.
Just like the application process, different lenders have different consequences in the event of customer default. If you miss a payment, your lender may start by charging you a penalty fee and, depending on the amount you owe first, pay a penalty fee and pay additional interest. If you continue to miss payments, your lender may, after a period of time, entrust your account to a collection agency, which will pursue your debt in the place of your lender. If the amount you owe is large enough, it may even result in legal action, in which a federal judge could order a wage garnishment. Since court proceedings themselves can be costly and time consuming, trials are rare. That said, they can happen and if the amount of your debt justifies this effort, your lender may want to sue you.
Secured loans and unsecured loans
The vast majority of short-term loans will consist of so-called “unsecured” debt, which means that the borrower has offered no collateral or need for approval. The guarantee refers to the assets of the borrower; property such as a house or car that can be offered to secure a loan. If a borrower has a guarantee, not only does his chances of approval increase, but the lender could give him a larger amount and maybe even a lower interest rate.
So, if you need a large short-term loan, using your home, car or other real estate as collateral could make you more solvent. However, it is extremely important to understand the consequences of a default in the case of collateral. If the loan is secured by your assets but you are in default for too long, your lender may have the right to seize your collateral to cover the rest of your debt.
Why should not I get a payday loan instead?
In some of our previous articles, we talked about the use of payday loans and the ease with which borrowers can get caught in the trap that accompanies them. While this may not be true for everyone, it happens unfortunately to many people in North America. Payday lenders can be found on the street or online. They are a frequent source of small short-term loans, typically in the range of $ 100 to $ 1,000. They are attractive because they do not require any credit check and are approved the same day. All the needs of potential borrowers are a source of employment and will have little difficulty in gaining approval.
This is where many borrowers get into trouble. Payday loans are usually supposed to be repaid in two weeks, the typical payment cycle of many paid jobs. Because of this, they also have extremely high interest rates, sometimes as high as 500% APR (annual percentage rate). This means that a borrower could end up paying hundreds of dollars more for what was initially a very small amount of money, especially if he fails to repay it by its original due date. In fact, most Canadian provinces now have very strict policies regarding how loan lenders are allowed to practice and the amount of interest they may charge. All of this to say that if you need a small loan in the short term, be very careful of who you get it.
Use your short term loan in an emergency
As we mentioned earlier, most short-term loans will not be for extremely large amounts. Most often, they are for a few thousand dollars, which is why they can usually be reimbursed in a relatively short time. Just enough for a borrower to deal with urgently, then quickly deleverage. It is therefore important to be extremely responsible with the credit you have been given. By “responsible” we do not just want to make your payments on time and in full (which you should always do). It also means thinking about your decision before signing a contract. A three-year amortization period may seem attractive, as it gives you enough time to raise the funds you need, but you also risk extending your debt for longer than necessary.
Always manage your short term loan responsibly
In conclusion, it is clear that short-term loans can certainly be useful in emergency situations or at any other time when you need additional financing for something that you might not necessarily pay otherwise. From an emergency to a good vacation, as long as you are responsible and you make your payments on time, you can certainly use a short-term loan to get where you want.