What you should know about short term loans?

There could be several reasons why anyone will opt for a short term loan, when they need emergency funds to handle some unexpected expenses or for some other purposes. These types of loans come in the category of high risk loans since these loans do not require collateral and many clients usually default on their payments due to variety of reasons.

Mentioned below are some of the pros and cons of payday loans, when and how you can use them and how they can damage or repair your credit score

Advantages of a short term loan

• Faster access to funds – the greatest advantage of using short term payday loans is in the quick access to the funds before your payday. Once you have shown the lender a valid source of your income he will approve a loan amount that will be equal to a certain fraction of your paycheque. You can easily access the approved amount from your bank account once it has been approved.

• Helps in securing a grace period to organise your finances – applying for credit is usually a time consuming process, providing documentation, shopping around, signatures and multiple in person meetings, finally gaining access to funds, etc. a short term loan might be the method through which you can ensure that you do not fall behind on your payments while you are trying to get your finances in order.

• Skip late fees – if you are being charged late fee by your creditors or if you are being asked to pay some service reconnection and interruption charges, short term loans might offer you with a way that can help to keep your services operational.

• Requirement of lesser documentation – majority of payday loans need very little documentation which can be filled easily and reviewed in only one visit. Most lenders would ask you to reproduce a copy of any previous paycheque just to verify your source of income and the income itself before they approve the amount.

What you should know about short term loans Canada

Disadvantages of Short Term Loans

• Short term loans are expensive – not only the interest rates being charged on these loans are exorbitant, majority of them charge ridiculous amounts as late fees if you fail to make the payments as per the agreement. Do not expect any special treatment from any lender you know.

• Use the received money for correct purposes – Always remember that the amount you receive will be deducted from your upcoming paycheque. Only take a loan when you need it and not when you liked anything expensive as it will get you into an even bad situation.

• Capped loan amount- the loan amount is set at a certain limit depending on your paycheque so make sure that you have enough money available from your paycheque to repay the loan and handle other monthly expenses.

When considering your options for short term loans beware of the following things

1. Terms and conditions of the Payday Loan – some companies provide very short time period for loan repayment. If they are offering you money only for a week or two then it is of no use for you. Go for a lender offering at least a 30 day window for repayment.

2. Fees and various charges – ask your lender about charges, fees, interest rates and the late fee fines in case you missed a payment. Make sure you get all these things in writing. If they are not ready to provide these figures to you in writing then it will be better to walk away from such a lender, do not ever conduct business with a lender who is not ready to back everything up in writing.

3. Maximum amount – always be aware of any lender offering your complete paycheque as a short term loan. They could be luring you into a trap and draining your finances thus forcing you to get another short term loan. Such lenders try to get you into a vicious cycle of using a short term loan to repay another payday loan and survive since you paid your entire paycheque. They duped you once and now you are going back every week to get a new loan. It’s good for their business but will drain you financially.