Short term loans explained
If you are considering taking out a short term loan it is important to understand what the loan entails so that you are able to choose the loan provider that best meets your needs.
Defining a Short Term Loan
A short term loan is simply a loan with a shorter payment term. Where traditional loans may spread payments out over years, short term loans are typically smaller loans that are paid back in weeks or months. Unlike traditional loans that are used to finance big purchases, short term loans are used for times when you are temporarily low on funds.
A major benefit to short term loan is the speed in which you are able to get approved. Many short term loans are approved within a day allowing you to have quick access to needed funds. The loan processes is simplified and reduces the amount of paperwork needed for the application.
Many traditional loans may require collateral and extensive financial documentation, like tax returns and monthly expenses, to start the loan process. When applying for a short term loan, many times all that is required is your social security number, driver’s license, a bank statement, and a pay stub.
Depending on the lender, you should have a decision regarding your application within a day. Once approved your lender should provide you with information regarding interest, fee, and payment terms.
Carefully read through the terms of your short term loan to make sure you are comfortable with your responsibilities. Just because you have been approved does not obligate you to accept the loan.
After you have accepted the loan the lender will begin the process of issuing the money. This is most often done through wire transfer or direct deposit although some lenders may write a check.
The method of payment will depend on the lender. Most lenders will set up a pre-authorized debit on the loan due date. Others will accept checks or money orders if you are making installment payment on the loan.
Like many loans, the amount you will be approved for will depend on your income. Typically lenders will look at how much you make when determining your loan amount.
Another factor in determining the amount of your loan will be where you live or where the lender is located. Many states place restrictions on the amount a short term loan lender is able to issue. All short term lenders should be aware of the state maximum and will be able to provide this information during the application process.
Advantages to Short Term Loans
Short term loans allow individual who may not otherwise qualify for a loan access to money in emergency situations. The shorter payment terms also allow you to pay off the debt quickly rather than taking years like traditional loans and even credit cards.
Another advantage to short term loans it that they are unsecured which means you do not have to offer collateral like a car title or other possession in order to be approved.
Even though short term lenders are not regulated by some of the laws as traditional banks, you are still afforded certain protections. They are regulated by the Consumer Financial Protection Bureau and must comply with the Equal Credit Opportunity Act, the Electronic Funds Transfer Act, and the Truth in Lending Act.
When you decide to use short term lenders, do your research to ensure you are dealing with a reputable company. A better understanding of short term loans can help you to make an informed decision that may end up saving you money.