You can choose between secured and unsecured short term loans. If you have an asset that can be used as collateral, then a secured loan is better as the rate of interest is considerably less. However, secured short term loans are not readily available. They take a long time to process. It could very well be a week up to a fortnight for you to get approved by a bank. Also, they are not meant for all purposes. You cannot seek secured loans for a personal purpose, such as paying for home improvements or just to have some extra cash to pay impending bills. Unsecured short term loans are available from private lenders. These could be payday loans. Not all unsecured short term loans are payday loans. If the repayment does not correspond with your payday, then you are opting for a normal short term loan.
- The most important of all tips to remember is that short term loans have interests calculated monthly, as compared to the per annum calculation of long term secured loans. When you borrow money from a private lender and have to repay in six months, an example, you will be charged interest as per the monthly rate. You may get a quote that says it is an annual percentage rate but the interest calculation will be per month. In case you are being quoted a monthly rate, do not assume the annual percentage rate will be an equivalent of that number multiplied by twelve. The annual percentage rate may be less or more than the twelve months equivalent of a monthly rate. Hence, you should note how the lender presents the rate, if it is clearly mentioned as a monthly rate or an annual rate. Then you should calculate the interest on the basis of the term.
- Short term loans may or may not require a credit check. If a lender clearly states that it does not conduct a credit check, then your credit history will not matter and you will get a fair deal. If a lender conducts a credit check and you have poor or average credit, then even if you are eligible for a loan, the rate of interest could be higher. This is true not just for private lenders but also larger financial institutions. Every lender has the discretion to charge a particular rate, while not breaching the regulation, depending on the risks they are exposed to. The profile of a borrower or applicant determines risk in an individual scenario. If you are uncertain what your credit score is, get the latest report and find out. Else, you should look for a lender that does not carry out a credit check.
- Do not go for a shorter or longer term than you have to. Short term loans can have a repayment period ranging from a few months to three years. Do not opt for four to six months if the installments are becoming a bit unaffordable. Do not needlessly stretch the term. Despite the reduction in the installment amount, you will be paying much more interest.