Short Term Personal Loans

What Is A Short-term Personal Loan?

It is an unsecured loan that can be paid within 1- 2 years. You get credited as soon as the loan gets approved and the approval doesn’t require a chain of procedures and formalities either. Short-term personal loans generally have a low maximum amount that you can borrow at a go (usually around $1000 to $15,000).

This is unlike medium or long-term loans which usually take up several years for repayments. Meanwhile, it is different from credit cards as it provides a large sum of money that you pay back each month until you’ve covered the debt. Unlike credit cards which give you a range of credit and a revolving balance based on your spending activity. Short term loans do not require you to pay up at the next payday as is the case with payday loans.

Eligibility Criteria

As much as it is unsecured, there are still some requirements to be met however, just like we have terms and conditions applied to every transaction. It varies among lenders and can be more stringent in some cases although it is still always within limits of general requirements. Those criteria are just necessary to ensure you are a real person and will pay back in due course. The most important criteria are underlisted as follows:

Identity

Two forms of identity proof are needed which must be government-issued and indicate that you are an adult over eighteen years old and a Canadian. This also reduces the incidence of theft since your identity is known and can even be used to verify your bank account balance. Proofs can be driver’s license, citizenship or birth certificate, passport, and allied documents.

In addition to your proof of identity, you might need to provide your current residential address. Many times, this has been indicated in your means of identification but it is verified anyways. This can be gotten from a recent utility bill, and your voter’s card can even do the job.

Credit score and history

Some lenders will not request any credit score while some will. With a credit score of about 600, you are good to go in most cases, although it might not be as much for some lenders while some demand a higher score to show your creditworthiness. 

A credit score is usually based on factors like payment history, length of credit history, and whether you have cases of outstanding debts. If you have a case of outstanding debts, that will discourage the lender from approving your loan request.

Source of income 

This is needed to guarantee that you have a steady means of paying back your advances. Many lenders require you to provide proof of a steady job for at least one year to guarantee that you have a means of paying back your loan. This can be a payslip from your workplace or your statements from your bank indicating your financial strength.

Prospects Of Short Term Personal Loans

• Since it is meant to be paid back within a short time frame, less than a year, this means a shorter time for incurring interests, implying lower total interest payments.
• It is easier to acquire, fewer modalities are involved in the application process and it is unsecured.
• Meanwhile, it is the best option for many small businesses or individuals who can not avail themselves of an avenue to get long-term personal loans.
• In addition, some short-term loans do not have a specified payment schedule or due date, you are simply allowed to pay back the loan at your own pace.

Considerations Against Short Term Personal Loan

Despite the short-term personal loan being easy to get an option, it has a disadvantage in that it can only avail the borrower of a smaller amount of money since it is paid off sooner. Lenders might not want to take risks thinking that you will encounter difficulties in paying back because you can spread the payback over a long period as is the case with long-term loans but not with short-term personal loans. Moreover, you wouldn’t want to take a large sum of money either to avoid huge debts monthly as this can affect the already lined up expenses for those months.

In Conclusion 

Since emergencies are inevitable, there will always be a medical bill that comes up out of the blues or a simple business project that needs to be executed as soon as it is proposed, especially in one-man small businesses, there will always be a need for short term personal loans.

It can be a lifesaver for individuals in the face of emergency expenses and also to fix sudden cash flow issues of small businesses. 

However, it is advisable to take them as little as possible to avoid incurring large monthly debts payment on yourself. This is important to avail yourself of an opportunity to be eligible for subsequent ones since you earned yourself an applaudable credit score and history. Better still, you can consider borrowing from friends (also known as friendly loans). In this case, no requirements whatsoever, just your trust that guarantees you will pay back as soon as possible and every other condition is verbally agreed upon. 

In all, financial education is important for every salaried employee. Apart from foretelling the lesser likelihood of needing a personal loan, it keeps you in control of your various projects and expenses and saves you undue pressure and financial mess.