A personal loan is a short-term loan, which you can repay in installments. It’s a great alternative to traditional short-term loans, offering quick cash at extremely high interest rates. With a personal loan, you have the right to prepay the loan to free up income in your spending plan and potentially save on interest.
Most short-term loans require proof of employment, a salary statement, a bank account, and a valid driver’s license. Because there is often no collateral and lower credit requirements, these loans charge a higher interest rate (up to 400%) and may incur other fees and penalties.
Let’s dig deeper and explore what short-term personal loans are available, and if there’s a good option for you.
A short-term personal loan is a type of loan with little or no collateral and a repayment term of less than one year. This may require supporting documentation (such as proof of employment or your credit card history), but in most cases you submit a request and receive your money within 24 hours.
Short-term loans are offered for a maximum amount of $2,000, with repayment in weeks. After the company reviews your application, they send the contract with the approved amount and interest rates. So before accepting, you still have a chance to calculate how much you will have to pay back.
There are a few main types of short term personal loans; they have different features, conditions and fee structures:
- Payday loans – the loan providing money to borrowers, until they receive their next salary. Let’s say you want a $100 loan today – payday can do that! The only requirement might be proof of your employment with a payslip. These loans must be repaid quickly and painlessly – otherwise you will be subject to high APRs and fees;
- overdraft – a form of short-term loan, where customers can obtain temporary cover for charges from their bank if the account does not have the necessary charges. In terms of repayment, these loans are similar to installment loans: a borrower will have regular and frequent payments for a period of time until the principal and interest have been repaid;
- Car title loans – a type of short-term loan, which allows a borrower to use the vehicle as collateral. Rather, it is an exclusion from the definition of short-term personal loans (which normally have no collateral), but it is a perfect example if we are talking about the high interest rate. If you are late with your payments, the interest charges increase and the loan will cost you much more.
- Bridging loans – are useful during real estate transactions. For example, when you bought a new house, while the other property remains on the market. For this type of loan, you will need an impeccable credit rating; lenders also prefer borrowers with a low debt-to-income ratio (DTI).
Another popular option for short-term loans is to extend your line of credit with a credit union or bank. It can improve your financial situation at once, without side effects. As a result, a higher line of credit makes you more attractive to lenders.
If you decide to apply for a short-term loan, consider lenders, who do not charge penalties. In another scenario, you will be asked to pay additional fees if you want to complete the transaction before the agreed time. Isn’t it deeply unfair that paying off the loan sooner could cost you more?
Here is the list of several companies, which will not charge you for such a “service”:
- happy money – a loan provider with an innovative approach to lending. It offers personal loans, ideal for consumers, who want to save money. Happy Money consolidates high interest rates, giving borrowers exclusive access to more efficient management of their finances. Be aware that while there are no prepayment penalties, origination fees of up to 5% may apply.
- LightStream – the lender that offers some of the lowest interest rates on personal loans. Same-day financing is available and there are no prepayment penalties or other fees. If you keep in mind that shorter loan terms come with lower interest rates, that makes LightStream a considerable option. And your financial best interest.
- SoFi – a lender, who can extend you some credit, if your score is at least 680. SoFi customers also get free access to financial advisors, career coaches and other events, dedicated to improving your financial literacy. This lender offers a seamless application experience, saving you from late payments or prepayment fees.
- Reached – a lender worthy of attention, due to competitive interest rates and fast financing options. Beware, Upstart will assess your credit score and review your work history to determine if you are a good candidate for a loan. If you have a loan with this company and decide to pay it off early, you will not be subject to additional charges. However, you will be asked to pay an origination fee of up to 8%, as well as a late payment fee.
According to statistics, more than 20 million Americans have unsecured loans. So, before getting approved for funding, check the company’s refund policy. Look for additional fees and interest rates that may apply; ask a financial adviser about prepayment.
To wrap up this story, we would like you to reassess the purpose you have for a personal loan. Remember that you can always ask your friend or family for money. make the option buy now, pay later; or simply subscribe to a credit card.
Even though short-term loans seem like a great opportunity to cover your needs, their fees and interest rates sometimes exceed 400%. Missing payments will negatively affect your credit score and cost you more in late fees, penalties and interest.
Look for online lenders offering money at no additional cost; check the refund policy and if there is anything extra to pay if you want to complete a transaction sooner. Make sure you’ve done your research and won’t face any negative consequences when working with online lenders.