What to Ask Before Getting a Short Term Loan
A short-term loan is a loan with a tenure of 12 months or less. The interest rates for short term loans are higher than the medium or long term loans. There are certain things that you have to ask, and understand, before taking a short-term loan.
Do I really Need a Loan?
This is a straightforward question, but one that is most often overlooked by people / business looking for extra capital. If there is a medical emergency, and you need some quick cash to pay the bills, then a short-term loan makes sense. A start-up business taking a short-term loan to expand their business make sense. However, taking a short-term loan for something that you do not really need when you are strapped for cash already does not make sense.
What is the Loan Term
Identifying the loan purpose will help you to identify the loan term that you should ideally for meet your needs. For instance, let’s look at personal finances like running a small business that must remain profitable; if you are going to buy something that you hope to sell within a month or two for a profit, and then a short term loan makes sense. However, taking two or three short term loans for expensive machinery that you plan to use in your company for a long time does not make sense.
What is the Amount of Money I require?
If the answer is ‘as much as I can get’, then you may need to put some more thought into the reason for taking the loan. The purpose of taking the loan should be clear to you. In fact, you should not be borrowing as much as you could get, just as much as you actually need. There are costs associated with borrowing. If you are borrowing the money to take a vacation, then you should calculate how much the vacation would cost you, and then only take that amount of money.
What are the interest rates and the total cost?
Annual Percentage Rate or ARP is one way to compare loans. The total dollar cost of the loan should also be considered. All the fees are included in the APR calculation. When you are comparing an APR to another one, make sure you are taking into account the full APR and not just the annual interest rate. Some short-term loans may have very high APRs simply because their terms have such a short turnover. This is the case with payday loans where they actually cost around 20% interest in Canda if their terms are properly followed. It is only when the terms are broken and a 14-day loan balloon to a 365-day loan and its APR balloons up as well accordingly.
Check with the lender about late-payment charges, and whether you can close the loan before the specified tenure without incurring additional charges. A reputable lender / financial institution will provide you with all the information regarding the interest rates and the other fees. For instance, when you go with a reputable financial institution like Cashco Financial, you can be rest assured that you will be given the correct interest rates, as well as any other fees before taking any loan. There will not be any hidden fees.
What is the payment schedule?
Ask the lender about the payment schedule, whether it would be daily, weekly or monthly? If it is daily or weekly, and you or your business does not have a consistent cash flow on a daily or weekly basis, then do not opt for that type of loan.
When is the initial payment due?
When you take a short term loan with a monthly payment schedule, then it is safe to assume that the first payment would fall next month. If the repayment schedule is on a daily basis, then you may have to make the first payment the next business day. Check with the lender regarding this so that you do not end up with a bad spot on your credit report or incur any addition fees.
How do you make the payments?
Check with the lender whether you can make the payments via cheque or online. Many lenders nowadays offer easy online or electronic payments.
How long would it take to process the loan application?
Check with the lender for how long it would take for them to approve your loan application. With a payday loan and such, you would get the money instantly. However, some lenders take days or even weeks to process an application for certain short-term loans.
Does the lender report your payments to the credit bureau?
Some people take short-term loans to improve their credit records, which can happen by paying off the loan in a timely manner. If the lender does not report to the credit bureau, then there is no point for you to take a loan from them if your goal is to improve your credit score. On the other hand, if you default on your monthly payments, and the lender reports this to the credit bureaus, then this would affect your credit score negatively. As long as you plan on making affordable on-time payments, then a Flex Loan from Cashco Financial is the perfect loan for you. Visit our Flex Loans page for more information.
Understanding all the terms and conditions before applying for a short term loan is vital. Getting a short term loan is quite easy, even if you have bad credit. However, taking a short term loan without asking the proper questions is not wise.