Short-term loans are relatively new and they are loans that many people have not used. This means that you may not be aware of how they work. You might think that there is no point in you really knowing, but actually it is wise to know about all types of loans. This is because you could find yourself in the position where you need to borrow money and it is important to understand what options you might have and which would be likely to suit you the best. There is nothing worse than suddenly needing money, being in a panic and picking a completely unsuitable loan. It could cost you more money and stress and you could end up really struggling to repay it. But, if you know about different loans and how they work, you should be able to make a much better decision and hopefully pick a loan that will give you good value for money and that you will be easily able to repay.
So how do short-term loans work? They are similar to any other loan in that you borrow money, get charged interest and fees for that privilege and then you have to repay it again. However, there are some key features that they have, which are different to a majority of other loans. This is what is important to find out about and then you can compare them and know whether they will be the right loans for you.
- Credit check – many people get turned down for conventional loans because their credit rating is not good enough. We all have a credit report and this has information about us which potential lenders use to judge us. They all have different criteria, which makes it hard to know exactly how a perfect credit report should look. However, the types of things that they are likely to be interested in would be previous borrowing history, ability to make regular payments and employment status. If you have had loans in the past and repaid them on time, got a job with a good salary that is paid regularly and always pay you rent/mortgage and bills on time then you would seem a great candidate. However, If you are self-employed, have missed lots of loan payments in the past and got a CCJ and sometimes miss utility bill payments then you will not look so good. Someone like this is likely to be turned down for a loan by a long-term lender. However, a short-term lender will not judge based on this. Therefore, even if you have a bad credit report, you should still be able to get a loan from them.
- Speed– the amount of time that it takes to get the money, when you apply for a loan can be crucial for some people. If you need money quickly, perhaps because you have an emergency and need to buy a new fridge, get your roof repaired before it leaks or buy food to feed your children, then it can make a huge difference if the loan is fast. A more conventional loan can sometimes be long-winded in getting you the money that you need. Short-term loans are quick. This is because many of them were set up with the purpose of being available for emergencies. This means that they are fully aware that money could be need really fast. This means that it can be possible to get the money within a few hours, form some lenders.
- Repayment – repayments for loans can be different too. A payday loan is a specific type of short-term loan and it has to be repaid in one lump sum. Other types of short-term loans are repaid in instalments but not many. This means that these loans are repaid much more quickly than a long-term loan. Some people much prefer this as it means that they are not in debt for so long. However, it can mean that you may have come up with more money in a shorter space of time, so you will need to be sure that you will be able to do this. Otherwise you may need to consider a different type of loan.
So, as you can see there are some quite significant differences between short-term loans and long-term loans. It is wise to stay aware of what these differences are and then you can make sure that you are choosing the best sort of loan to suit you. There are many types of short-term loans as well, which means that you will need to know about these as well. Then if you do think a short-term loan will be the best type for you, you will know what types you have to choose from. You will also need to then pick between lenders to find the precise loan that you feel will be the best.