Introduction: What Are Short Term Loans?
Short term loans are a type of personal loan designed to help you access cash quickly when you need it most. These loans are ideal for covering unexpected expenses, such as urgent car repairs or vet bills, that can’t wait until your next pay cycle. Unlike traditional term loans that may stretch over several years, a short term loan is typically repaid within a short period—anywhere from a few weeks up to a year. The loan amounts are usually smaller, often up to $5,000, and come with a fixed interest rate, so you know exactly what your repayments will be. Whether you need to borrow money to cover a sudden bill or manage a temporary cash shortfall, short term loans can provide a practical solution to help you get back on track.
Understanding Unsecured Personal Loan Options
Unsecured personal loans, including many short term loans, are offered by financial institutions without the need for collateral. This means you don’t have to put up any assets, like your car or home, to secure the loan. Instead, lenders look at your credit history and your ability to repay when deciding whether to approve your application. These loans usually come with a fixed interest rate and a set repayment term, so you’ll know your monthly repayments in advance. Before taking out an unsecured personal loan, it’s important to review the loan amount, interest rate, and loan terms to make sure the repayments fit comfortably within your budget. Understanding these details will help you choose the right loan for your needs and avoid any surprises down the track.
Cash Loan Alternatives
If you’re thinking about a short term loan, it’s a good idea to consider other cash loan options as well. Alternatives like credit cards or bank overdrafts can sometimes help you cover unexpected expenses, but they often come with higher interest rates or additional fees. Before making a decision, compare the costs and terms of each loan option to see which one works best for your situation. You might also want to ask friends or family for a short-term loan, or use your own savings if possible, to avoid taking on extra debt. Exploring all your options can help you find the most affordable way to cover those urgent costs.
Picking the best short term loans depends on a lot of things. But if you arm yourself with the right information, deciding which loan to get will be a much easier process.
If you need money for an emergency, you might consider taking a short term personal loan. It’s one of the best ways to quickly get funds. Quick loans and cash advances are available for those who need to cover costs urgently, providing fast access to funds for emergencies.
Keep in mind that short-term loans are not limited to personal finances alone. For example, you want to take advantage of a business opportunity you came across. And you’ll need funds to make it happen. A short term loan could be the solution.
Small loans are ideal for covering minor, unexpected bills, while larger loans can be tailored for bigger expenses or business opportunities.
But what is a short-term loan?
A short-term loan is money that you borrow and pay back quickly, usually within a year. Often, this type of loan amounts to a few thousand dollars. But it also could be more, depending on the lender.
There are a lot of lenders who offer different types of short term loans. So, picking the one that fits your profile from the lot might be a bit exhaustive.
In this article, you’ll discover what you must consider before taking out a short term loan. You’ll also find out what factors you need to keep in mind in order to pick the right loan for you.
Four Things To Consider Before Taking a Short Term Loan
Short-term loans give you quick access to the funds that you need. But if you don’t get the right one, it could backfire. You could run into debt and this could affect your credit score.
Before applying, take a close look at your financial situation—consider your income, existing debt obligations, and regular living expenses. Also, review your other financial commitments to ensure you can manage all your obligations.
That’s why there are four key questions you need to ask yourself before taking out a short term loan, such as:
- How much do you need to borrow?
- How much can you set aside for loan repayment? Be sure to consider your ongoing financial commitments and other financial commitments when determining your repayment capacity.
- How long will it take you to pay it back?
- What is the total cost of the loan?
Managing Unexpected Expenses
Dealing with unexpected expenses can be stressful, especially if you don’t have enough savings set aside. Short term loans can offer a quick solution, but it’s important to only borrow what you can comfortably repay. Before applying, take a close look at your financial situation—consider your income, existing debt obligations, and regular living expenses. Make sure the loan repayments won’t stretch your budget too thin. Using online tools like a budget calculator can help you get a clear picture of your finances and make a smart decision about borrowing money. Remember, responsible borrowing is key to managing your finances and avoiding further debt.
The Online Application Process
Applying for a short term loan online is usually fast and straightforward. Most lenders offer an online application process that can be completed in just a few minutes. You’ll need to provide some personal and financial details, such as your credit history, income, and bank account information. Once you submit your application, the lender will review your information and give you a loan decision—often within minutes. If your application is approved, the funds are typically transferred directly into your nominated bank account via bank transfer, so you can access the money quickly to cover your unexpected expenses. This convenient process makes it easier than ever to get the financial help you need, right when you need it.
- Do I actually need to borrow money?
Be absolutely sure that you need the money. Your reason for borrowing should be to fix an important issue or to make more money.
Have a clear estimation of the expenditures you need the loan for. This prevents you from borrowing more money than you need. As a result, you’ll pay less fees. When deciding how much to borrow, always consider the total repayment amount, including all fees and charges, to understand the full cost of the loan.
Take a look at your monthly cash flow. How much can you set aside for the loan repayment and for how long? Do you need to reduce your outgoings? Making extra repayments can help reduce the total interest paid and shorten the loan term.
- How much interest am I willing to pay?
You should have an idea of how much interest you can afford to pay on the loan.
Having clear answers to these questions puts you in a better position to choose the right loan and lender.
How a Lender Approves Your Loan
As to be expected, lenders don’t just give out loans to everyone who applies. They’ll first analyse your application to see if you fit their requirements. Each lender has specific lending criteria that applicants must meet. If so, only then will they approve your application.
Here are a few factors that they look into:
- Your personal debt ratio. They want to know how much of your credit rating you’re using. If your credit rating isn’t good enough, they might reject your application.
- Business debt. If your business debt is higher than the average in your industry, they may reconsider approving your loan application.
- Your revenue trends. You have a higher chance of getting a loan if you have a healthy projected income.
- Debt coverage. Lenders will check if you have other personal or business debts. If there’s too much debt, they may reject your application since it may hinder you from repaying their loan.
During the approval process, lenders will review your credit report, credit file, and recent bank statements to assess your financial stability. Responsible lenders follow responsible lending practices, considering your personal circumstances and any bad credit history to ensure a fair loan approval. Responsible lending means the lender will only approve a loan if they believe you can afford the repayments, taking into account your overall financial situation.
Choosing The Right Short Term Loan – Three Factors to Consider
Factor #1 – Eligibility
Know that your credit score gets negatively impacted whenever your loan application is rejected. To avoid this, you have to ensure that you are eligible for a loan from a particular lender before applying.
In general, here are things you need to qualify for a short term loan:
- You must be an Australian resident or citizen aged 18 or above
- Credit reports
- Identification documents
- Banking history for the last 90 days
- Personal and business tax returns
Most lenders require you to complete an online application form as part of the loan application process. Submitting a cash loan application online is usually quick and straightforward, with digital document uploads and fast decisions.
Note that these eligibility criteria differ from one lender to another. That’s why you should check a lender’s specific eligibility criteria before trying to get a loan from them.
Factor #2- Fees
As mentioned, there are different types of short-term loans that you can avail of. They have varying fees that depend on the interest rate and the loan term. Some lenders may also charge an establishment fee, which is a one-time upfront cost added at the beginning of the loan.
When comparing loan offers, look at the comparison rate, which includes the interest rate and most fees, to help you compare the true cost of different loans more accurately. Always check for hidden fees to ensure transparency and avoid any surprise expenses in the total cost of the loan.
Two of the short term loans that people commonly apply for are a fixed-rate loan and a variable rate loan.
In a fixed-rate loan, your interest payments are calculated as an overall amount when you take the loan. Then, your repayments will be spread evenly across the duration you are taking the loan for.
A variable rate loan is different. Here, your interest payments may go up or down, depending on fluctuations in the economy. They are less predictable than fixed-rate loans. However, you can still estimate how much you are to pay every month.
There could be other applicable fees, depending on the lender. Also, keep in mind that the longer you borrow, the more money you will need to repay the loan.
Factor #3- Lender’s Terms & Conditions
Knowing who you’re borrowing from is also very important. When you know how a lender operates, you can easily decide if they are the right fit for you.
Borrowing from the right lender will save you a lot of time and effort in the long run.
So, read the terms and conditions attached to their loan offer and see if you can abide by it. Check out their FAQs and make enquiries if something isn’t clear to you. You can also use the information to gauge if the lender is reputable.
You can also find out more about a lending company by checking their ratings. If other customers had a good experience with them, there’s a good chance that you will, too.
That said, an ideal strategy is to first choose the right loan product and then check if the lender is reputable. Lenders may offer a variety of credit solutions, including unsecured loans, to suit different needs and financial situations. Remember that the right company should have a straightforward offer – it should be communicated in a clear manner and without any hidden charges.
You Can Find The Right Short Term Loans For Your Needs
Short term loans are not for everybody. If you don’t have an urgent need for it, you shouldn’t take one at all.
But if you do need a short-term loan, you have to know exactly how much you want to borrow and for how long. You also have to be aware of the fees you will have to pay the lender. And don’t forget to read up about the lending facility.
The best way to avoid running into debt or any legal situation involving a loan is to arm yourself with information. When you do this, your loan application will not only get approved, you’ll be able to pay it back in time.
If you need further assistance, Unsecured Finance Australia is here to help. Apply online and you can receive your approval within 24 hours.
Find out more by taking a look at our unsecured business loans.
