Quick Short Term Loans: Expectations vs. Reality

Wednesday, March 11

Quick Short Term Loans: Expectations vs. Reality

We have all experienced situations where we have an unforeseen need for cash but the payday is still a week away. It may be an emergency surgery, car repairs, or parts you have a broken down geyser. The little cash you have on hand is budgeted for food and fuel, things you cannot do without.

To get out of these unexpected financial difficulties, you will have borrow money from somewhere. And outside your friends and family, the only way to get quick cash is through applying for quick short term loans.

But as with every financial decision, there are questions to ask about short term loans. Are these loans really quick? Are they a good idea? If they are really quick and easy to get approved for, what are the trade-offs?

How Do Short Term Loans Work?

Short term loans are like traditional loans you apply for at your bank, save for the fact they have to be paid back within a very short period of time, usually within one year and even a few weeks.

A typical short term loan that you can apply for is a payday loan. You can use this loan to meet your cash needs up to your pay day. In other words, payday loans are secured against your salary.

The process for approving short term loans is also not a lot different from how your bank would underwrite any personal loan you might apply for. The quick short term loan company you use will perform a credit check to gauge how well you manage your expenses.

After approving your loan application, your short term loan lender will offer you an interest rate and term in which the loan must be paid back. If you agree to the loan interest rate and terms, your lender will release the money into your bank account.

Are Short Term Loans Really Quick?

Almost always you will take out a short term loan because you need money to take care of an unexpected problem, often at very short notice. So the expectation is that short term loans have to be very quick.

When you consider that most quick short term loans’ companies promote these loans as ‘quick’, it is reasonable that you should expect to have the loan approved within hours and in your bank account the next day, at least. And in most cases, you indeed can get the loan approved the same day you applied.

A key feature of short term loans that mark them apart from traditional, longer-term loans is the soft loan application requirements. Lenders are generally less stringent, to the point that even people with poor credit histories can get approved for loans.

Short term loans are usually unsecured. Besides producing verifiable proof of employment, short term loan applications do not have to labour to convince the lender they can repay the loan. That said, lenders will still look into your credit history and will most likely use whatever they find there to determine the interest rate and loan term to offer you.

Convenience Of Loan Application

Over the last few years, lenders have made it really easy to apply for short term loans. Besides the option of lodging your application at the lender’s physical office, most lenders have online application platforms that borrowers can utilise.

Some short term loan companies will respond to your online loan application within an hour. This facility has shortened the time borrowers have to wait for the approval of their loans, making them much easier to access.

Higher Interest Rates Are A Cause For Caution

Short term loans are fabulously convenient and can unlock funding for people who would otherwise stand very little chances of securing a loan with their bank at short notice. But quick processing and and easy application conditions all sound too good to be true. And it is.

What you will find out when the short term loan services company offers you an interest rate and repayment term is that interest rates for these loans is usually much higher than would get for a long term loan at your bank. For that reason, the decision to seek a short term loan must be carefully considered.

Interest rates for payday loans, in particular, can be quite high. But while the rates differ between lenders, payday and other short term loans are regulated and have to meet certain conditions.

If you have a bad credit history, the interest rate the short term loans company will offer you will be quite high. Because you are considered a risky bet, the lender will try to protect its interest by charging higher interest rates.It isn’t a bad idea then that you should thinking deeply before taking out the kinds of loans.

Having said that, it is also a misconception that all short term loans come with exorbitant interest rates. If you take your time shopping around, it still possible to find lenders that offer affordable short term loan services. The advice here is to borrow from reputable lenders.

There Is A Higher Risk Of Misuse With Short term loans

It is good that short term loans are generally easy to get. But that is also a reason to tread carefully. The less than stringent application requirements increase the likelihood that the loan will be misused.

Loan misuse is also linked to loan default, which is something you don’t on your credit history. The fact you can get approved for a short term loan does not mean you have o have one. Only borrow when you have an immediate, time-critical need for cash.

Habitual borrowing, which is a common problem with low-income groups can push you into a treacherous debt trap that will be hard to get out of.

The short term loan space also attracts a lot of unscrupulous lenders. Do your research and steer clear of unregistered short term loan lenders. It is these unscrupulous short term lenders whose loan application requirements are murky and shifty and who charge exorbitant interest rates that have given short term loans a bad reputation.

In conclusion, while short term loans are a means to fast cash even to people with bad credit, are offered without a need for any collateral, and sometimes at flexible terms, these loans can come at higher interest rates and can encourage habitual borrowing. Because of this, it is advisable to only use short term loans when your need for fast cash is critical.

Galaxy Finance offers affordable quick short term loans and bridging finance solutions to clients in the UK. Contact us to discuss your needs.

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