Advice on Short Term Loans Tips
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Drawbacks of Short-term Loans
The drawbacks of short-term loans is the fact that you even need one, because that means you don't have any cash savings to draw on when unexpected financial needs come up—as they always will and do. Financial planners recommend setting aside three to six months worth of take-home pay in an emergency fund to cover things like medical expenses, car repairs, and other unexpected expenses. Of course, that's easy for them to say as they pull down six-figure incomes. Few people are able to follow this advice. Does that mean you shouldn't at least try to save some money for emergencies? Not at all. Here's some useful advice on Short Term Loans: Even if you can only afford to put $50 a month aside, that's $600 a year. For now though, if you are considering a short term personal loan, try to find avoid using a payday lender unless you absolutely have no other options available. And, take this moment to think about your financial big picture. You may want to seek financial counseling to help you get things in order and get on your way to a more stress-free financial future.
Loan Minimum Amounts
The average short-term loan is $2,300. If you need a small short-term loan, payday lenders will offer payday loans with amounts as low as $100, but they will charge you huge fees in comparison to the amount you are borrowing and they may require you to fork over the title to your car as collateral. If you are a member of a credit union, here's some great advice on Short Term Loans that you should check into: According to the Credit Union National Association, more than half of its member credit unions will make loans for amounts less than $500 based on a limited credit check alone.
About Bridge Loans
A relative rarity in the home lending market, a bridge loan is a short-term loan designed to help bridge a gap in which the borrower is experiencing a cash crunch. The most common example of this is a home owner who has bought a new house but hasn't yet sold his existing home. This frequently happens when someone has to relocate for their job with little or no notice. Terms can vary widely on bridge loans with origination fees that are high. Most run for six months and are secured by the home the borrower is trying to sell. This is fine assuming you sell your house, but deals fall through, and markets crash. Before you consider a bridge loan, consider other options. Your best bet is to avoid getting yourself into this position in the first place. Timing the selling and buying of houses can be tricky business, but you're better off staying put until you sell your existing house. If you can't or don't want to do that, consider selling off other assets or borrowing against your 401(k). That way, you're paying yourself back, not another creditor.
Alternatives to Short-term Loans
Before you take out a short term loan, make sure you've considered all your other options. Some employers offer payroll advances or no-interest loans for employees experiencing a temporary financial hardship. Do you have anything you can sell? You'd be amazed how much money you can make hawking stuff you don't use on eBay. If you are a college student waiting for scholarships or loans to be paid out, does your school offer short term bridging loans to get you through until the check arrives or the funds are deposited into your account? If your car is dead, can you take public transportation until you have the cash to pay for the repairs? If none of these are options, make sure you compare rates and terms on any loans you are considering so you don't get gouged.
Shopping for Interest Rates
People are funny. They clip coupons and comparison shop for things like toothpaste and frozen vegetables. Yet, when it comes to major financial decisions, they barely give a second thought to the idea of shopping around. But that's exactly what you need to do. Before you contact even one lender, you should call around to your local banks to find out what types of rates they are offering. You can visit Bankrate.com's personal loan search engine to find out the overnight averages for personal loan rates. It will let you plug in your zip code to get rates from banks, both local and otherwise, that do business in your state. Also, once you do decide on a lender, ask about discounts for auto payments. Some banks and credit unions will give up to a 0.25% discount if you allow them to automatically electronically withdraw the monthly loan payment directly from your checking account.
Considerations Before Borrowing
Advice on Short Term Loans: • Consider the total cost of the loan, not just the monthly payment. Longer terms will give you a lower payment, but you always end up paying more in interest. • Beware of hidden charges such as credit insurance. If you don't understand a fee, ask to have it explained to you. • Finally, a loan officer can talk until he or she is blue in the face, but the proof is in the contract. If the terms of the contract you are about to sign are different from what you were told, don't sign it. Those are the terms by which you will be bound. Make the lender correct it, and if they won't, take your business elsewhere. Keep these things in mind when short term personal loans.
Benefits of Short-term Loans
Short term loans can be a lifesaver when you are in a financial pinch. If you qualify for a short term personal loan, you are likely to have an interest rate that is much lower than those for credit cards. You are better off applying to a traditional bank or credit union, because their rates are usually much lower than payday lenders. The loan will usually have a term of two years—although payday lenders offer much shorter terms for correspondingly much higher interest. At the end of the term, you've paid back the principal plus interest, and you're done. None of this carrying debt forever by paying low minimum monthly payments that barely make a dent in the principal amount owed like with credit cards. Another perk of these loans is that they can usually be approved in as little as one day, three at the most. Plus, personal loans are pretty much no-strings attached at least as far as what you spend the money on. Spend it how you will, but make sure you pay it back according to the agreed upon terms.
Borrowing More Than You Need
Many loan officers get paid on commission, so it's in their interest to have you take out more money than you actually need. It is, of course, not ethical and may even be illegal for a loan officer to try to "up sell" you to a higher loan amount. If you are taking out a personal loan, it's because you are already cash strapped. Don't borrow any more money than you absolutely need to. A loan officer may prod you to take out more by telling you to stash it until you need it. Common sense dictates your monthly payment will be higher the more you take out. Instead of borrowing more money, stash the difference you'd pay for the larger loan in a savings account each payday. If you can set up an automatic withdrawal from your paycheck so it goes straight into a savings account, you'll be in a much better position.
Traditional Bank Loans
Traditional banks used to offer short-term loans and many still do. However, short-term loans is not where the money is. The interest rates on short-term loans through traditional lenders are relatively low compared to credit card rates. Plus, once the loan is paid off, there's no guarantee you'll continue doing business with the lender. That's why lenders today prefer to hook you up with a credit card underwritten by their bank. Credit card rates are higher, and there is more of an opportunity for the bank to charge you for things like late payment penalties, over-limit fees, and balance transfer fees. And, because of the open-ended nature of credit limits, you can continue to spend on an ongoing basis assuming you have not reached your credit limit. That means you may never pay off your debt, and that means more interest income for the bank.
About Short-term Loans
When you were a kid, if your family car broke down and your parents were short on cash, chances are dad would stop by the local bank branch and get a short-term loan for a few hundred dollars to cover the cost of the repair until payday. These types of short-term loans were often called signature loans or "character" loans because the bank relied on the person's good word and reputation. With the globalization of banking, changes to IRS laws surrounding the deductibility of consumer interest, and the proliferation of credit cards, such short-term loans fell out of style, but they are making a comeback. According to the American Banker's Association, nearly one in five loans made by U.S. banks was a nonmortgage installment loan, about double the number in 1998. If you need a short-term loan to help with a one-time expense, check to see if your bank offers them. If not, there are many online lenders to which you can apply. However, many of these operations are fly-by-night shops that charge high upfront fees and interest. Your best bet is to place an application with a known financial institution, one that has a good reputation and is legitimate.
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