Often you will find moments in your life where you need a significant amount of money that you had no idea that you will need. It might be a simple case of a car breakdown or any other expense you had not considered. One easy fix in such dire moments is short term loans. But it is only wise to be aware of the various caveats that come with it.
The people or financial institutions are granting you money to make money out of it. And if the less time taking the process or procedure happens to be, the more they hope to make out of it. If you take a short-term loan from lenders and fail to pay up, it might prove costly financially and personally as well. There is a Latin phrase Caveat D’ Emptor, which means let the buyer beware. Accordingly, you must consider the following aspects of your potential short-term loan before you apply for the same:
1. Be Sure Why You Are Taking The Loan
Before you borrow money, you need to know why lenders lend cash, especially in the short term. These loans, including an online payday loan, are by their very design not meant to be used during regular periods. You will be committing a grave mistake if you view short terms loans in the same way as you view credit cards. It is in no way an ongoing type of credit like credit cards or anything similar to a facility of revolving credit. Be mindful that short-term loans, in contrast, are meant for emergency purposes only, and they are intended for use in short periods. Suppose you are going to pay back your loan quite soon, more often than not. In that case, the accompanying interest rates will most certainly be relatively high. Similarly, defaulting on payments can potentially make the whole proposition very expensive.
2. Ascertain The Amount You Need Precisely
Before you apply for a loan, the very first thing you must do is determine the exact amount you require. Then, you can add some padding to arrive at a figure that seems appropriate to you. Remember to stick to the bare essentials as far as this figure is concerned. Short-term loans command a high if not excessive interest rate, which means you should only borrow as much as you need. If you end up borrowing more than what you need, you will lose a lot of money in the form of interests paid out to the lender. Some financial firms will offer potential loan top-ups. However, they would want you to have paid off at least half of the borrowed amount along with interest.
3. Remember Your Installment Payment Limitations
With the figure you need quickly at hand, you can now determine how much you can repay in the form of monthly installments. It is vital for you to consider before you apply for a short-term loan, as this monthly payment installment is what will determine the preferred loan repayment tenure. Experts will advise you to steer clear of loans with monthly payments beyond your means, even if the lending institution offers the same. It would instead be a better idea to ask the lender to increase the repayment tenure. Like the rest of us, you have a variety of financial commitments. Low monthly repayment amounts mean that you are in a better position to handle them. However, a longer tenure will indeed mean that you pay more for the loan in the form of a more significant interest amount.
4. Make Sure To Examine The Terms And Conditions Thoroughly
Please don’t make the fatal error of thinking all loan agreements to be the same as they seldom ever are. So, irrespective of whether it’s the first time you are taking a loan or the tenth time-carefully examine the terms and conditions. While there are often federal and state regulations and conventions that the agreement must follow, there are plenty of unique clauses.
You must know these clauses and the terms and conditions and are comfortable with them before proceeding to take the loan. Keep in mind when a lending institution offers you a loan, you are not obliged to take it. And if you do, you must be well aware of the terms and conditions.
This article has tried to inform you that short-term loans are convenient and attractive to get over an emergency or a sudden need for cash. You are tempted to think that it’s just till for the next paycheck. But if you are not careful, the accompanying high fees and interest rates can quickly lead you to a debt trap. Of course, now that you have read this article, the chances for the same are less. Cheers to your prosperity!