Short term loans are often overlooked by individuals because many people consider loans to simply be the borrowing of large amounts of money for an extended period of time.
Because of this, a number of problems that could be solved with short term loans either are left alone to get worse or have large amounts of money borrowed which the individual then has to worry about paying back.
In order to potentially help you avoid this, take a moment to stop and think about whether short term loans might be helpful for your situation and consider the information below so that you can make a decision as to whether or not to use this type of loan.
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What Are They?
As the name implies, short term loans are loans that are designed to be paid back within a much shorter period of time than more traditional long term loans. This amount of time may be as small as 3 or 6 months, or may be as long as up to a year.
Obviously, the amount that is borrowed with these loans will be much lower than what you would be able to borrow with longer-termed loans, but there is also a much smaller amount of interest that will have to be paid as a result.
How They Work
When you apply for short term loans, many lenders will look at how much money you've made on average over the course of the past several months in order to evaluate your ability to repay the loan.
They will also look at the value of any collateral that you might use to secure the loan, and possibly but not always your credit score. Unlike many other lenders, those who issue loans for short term repayment tend to focus more on your ability to repay the loan in a short period of time than how well you've repaid your debts in the past.
Your ability to pay back the borrowed money will largely determine how much you can receive with your loan as well as the amount of time that you have to pay it back. Since there isn't as much interest to be collected on the loan, there may be other fees or charges associated with loans offered by certain lenders as well.
Secured and Unsecured Loans
Depending upon how much you want to borrow and how quickly you'll be able to pay it back, you may be able to pick between secured and unsecured short term loans. If the loan is secured then you'll have to use some form of collateral as a guarantee that the money will be repaid, but in exchange you'll receive a lower interest rate on your loan.
An unsecured loan is one that doesn't require that collateral be used, and will feature a higher interest rate. Consider both options carefully, especially since the interest won't have as much time to build up over the term of the loan.
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