Life in today’s times can be quite challenging especially when you have to deal with unforeseen expenses such as medical costs when your payday is weeks away. That’s where a short-term loan turns out to be the go-to option for most people. Today, it is not a bad thing to take short term loans such as a payday loan to tide over the financial crisis. However, there are pros and cons of taking a short term loan and you need to take a look at those before you apply for them.
Short-term loans are one of the most popular forms of short-term borrowings among people. These are to be paid off within a month or on the next salary credit into the borrower’s account. Usually, such a loan can range from a small amount and up to 6 times the borrower’s monthly salary. This is why you must carefully analyse if it’s worth taking a payday loan or any other short term loan.
Pros of a short-term loan
Short-term loans are available without much inconvenience. You can apply for a short-term loan anytime and from anywhere. Some registered moneylenders will process the loan application and after approval, the loan amount gets directly credited to the borrower’s bank account for usage.
There is no need for elaborate paperwork and the long waiting time that typical bank loans require. You get quick money to deal with the unexpected costs that you are not able to cover with the cash in hand. You get to repay the loan in the weeks ahead, typically on the next payday.
One of the biggest benefits of a short-term loan is that it can be availed by even those who have a poor credit history or no collateral to offer. While banks might require it for a personal loan etc, a short term or payday loan requires no credit check.
Cons of a short-term loan
While these loans are beneficial for people in urgent need of money to meet an important and unavoidable expense, it is not as if there are no cons associated with them. To begin with, short term loan interest rates are always higher which means they are costlier than other conventional loan types. For instance, a payday loan interest rate can be the same as annual interest rates for an annual loan.
Also, short-term borrowing that requires paying off on the next payday would impact the finances of the next month while you apply for a payday loan. However, this problem can be resolved if you carefully choose the moneylender. For instance, some moneylenders allow the borrowers to pay over several months unlike those who require full repayment upon the next salary credit.
That’s why before you apply for a short-term loan, you need to calculate and make sure that you have the capability to repay the loan in full on the next salary credit. When you delay repayment, many moneylenders charge hefty late fees which can affect your payday loan interest rate, and there is no reason why you would want to burden yourself with extra costs. Therefore, you need to carefully review the need, try getting more time to pay the bill or due, consider borrowing from personal sources and only when nothing works, you should take a short-term loan.
By borrowing only for genuine needs, you don’t get into the habit of taking a loan for lifestyle needs just because it is easily available. Everyone loves extra cash in hand, but the higher loan interest rate takes more money out of your pocket than what you would typically pay.
Select the right moneylender
When you apply payday loan or any other short-term loan, you must make sure that you are borrowing only from a genuine moneylender registered with the Ministry of Law. You can go online and check the moneylender’s name on the list of the Ministry. If it is not there then you must avoid taking a loan from such a creditor or you could fall into major problems later.
Once you know that the moneylender is registered, you must check things such as loan interest rate and cost of penalties, other costs and repayment terms, etc. A good moneylender might charge you as low an interest rate as only 2.27% onwards per month and a repayment term of up to 12 months. They won’t require any collateral and you can simply apply for a loan by filling an online application form that takes no more than 5 minutes of your time. The loan officers usually call back within the day and upon approval, the amount is credited to your bank account.
Thus, as long as you have a genuine need and have a repayment plan/capability, go ahead and live worry-free by taking a short-term loan to manage your emergency cash needs.