The interest rates are higher than what you see for mortgages but don’t let that fool you. Shorter payback periods might mean lower interest rates and less cost in the long run.
Short term loans help you get out of temporary financial situations. They are designed for fast funding so that you have the money as soon as 24 hours after your approval.
When life just isn’t going your way and your finances or your credit score need help, a short term loan can help you get back on track. Whether you were caught off guard by a repair, your emergency fund balance is low or you’re simply looking to get ahead of this month’s bills, a short term loan can help spread out the costs and make it more affordable.
What Are Short Term Loans?
A short term loan is a specific amount of money that you can borrow, either online or in-person, from almost any lender in Canada. Short term loans typically involve less money than other installment-based loans and the average repayment term only lasts 1 to 2 years.
When you’re approved for a short term loan, the money will be deposited directly into your bank account as a lump sum. You will then follow a plan that allows you to repay the loan through equally divided installments with interest.
What Are the Best Uses for Short Term Loans?
Short term loans can cover the cost of any bill, expense, or emergency you need, including but not limited to:
- Medical emergencies
- Last minute travel expenses
- Car repairs
- Household repairs
- Moving expenses
Types Of Short Term Loans In Canada
Although the conditions of your short term loan will vary depending on where you apply and how qualified you are, there are normally two types that you can apply for:
Short Term Installment Loans
The majority of short term loans that you’ll find are installment-based. The full loan sum will be separated into installments that you would pay off periodically until your plan is complete.
While every borrower has different preferences when it comes to their budgetary restrictions, short term installment loans can be beneficial for a number of reasons.
- Low Monthly Payments – Short installment loans will be spread across 1 to 2 years making payments more affordable for the average borrower.
- Low-Interest Rates – Shorter repayment terms sometimes lead to lower interest rates.
- Flexible Repayment Frequencies – Under the right circumstances, lenders can adjust the size and frequency of your installments, making them easier to manage. Many lenders can offer a variety of installment frequencies, such as weekly (52 installments yearly), bi-weekly (26 installments yearly), monthly (12 installments yearly), semi-monthly (24 installments yearly) and accelerated (extra or larger installments).
- Fast Approval – Short term installments loans are typically easy to qualify for and provide fast funding.
In many provinces, you can also find a short term loan known as a payday loan. Like a traditional short term loan, this involves a relatively small sum of cash that you can apply for at a physical location or online.
Payday lenders will usually only offer loans of $100 to $1,500, with much shorter repayment terms of 14-days. The only documents required for approval are government identification that proves you’re at least the age of majority in your province, as well as proof of your permanent residency, steady income, an active bank account. Other benefits of a payday include:
- Easy Approval – They are easy to get approved for compared to other credit products.
- No Credit Check – Payday loans are often sought by people with bad or no credit as they do not require a credit check. Borrowers with bad credit, debt problems, low incomes, and recent discharges from consumer proposals or bankruptcies will not have much problem qualifying.
- Fast Funding – Loan funds will likely be deposited in 1 to 2 business days, making them a good solution for less expensive financial emergencies.
Beware Of Costs Associated With A Payday Loan
When deciding to apply for a payday loan, it’s important that you take into consideration all of the costs associated with it.
Interest rate. Interest rates on payday loans are extremely high. Depending on the province you live in it can cost between $15 to $25 per $100 you borrow. That is equivalent to an APR of 300% – 650%.
Fees. In many provinces, the full loan cost is automatically debited from your bank account on its due date. As such, if you don’t have sufficient funds you can be hit with a NSF fee.
Rollovers. Rollovers – Some provinces also allow ‘rollovers’, meaning you to apply for a second loan before your first is repaid.
Payday Loan Cycle. Payday loans are notorious for trapping Canadians in payday loan cycles. All these risks may lead to massive debt problems, especially if you already have poor financial health.
Which Short Term Loan Option Should You Choose?
Every borrower’s financial situation is different, so the short term loan that you choose should be based mainly on what you can afford in terms of your repayment plan.
Short Term Installment Loan
A traditional short term installment loan is a safer, more practical option when you have strong finances, good credit, and the ability to afford all costs associated with it. It may also be a more effective tool if you’re dealing with larger expenses or those that need to be financed gradually.
A Payday Loan
A payday loan, on the other hand, maybe a more straightforward solution when you have unhealthy finances or an expense that needs immediate coverage. Then again, payday loans are far riskier in many respects, so they are only the right solution when you’ve exhausted all the more conventional options.
Eligibility Requirements To Get A Short Term Loan
- An Active Bank Account – Generally lenders will require an active bank account to fund the money and to debit the payments.
- Personal Identification – Lender will need proof of indentification and proof of residence. So you will need to provide a valid address and a government issued photo ID.
- Employment Stability – This will vary from lender to lender, however, some lenders may require proof of employment. Lender typically want to ensure you’ve been employed for at least three months.
- Proof of income – Lenders will also require bank statements and pay stubs to verify your income. They may also require your bank statements to check your debt-to-income ratio.
- Collateral – Some lenders will require collateral to secure to loan. You can also secure the loan by getting a cosigner/guarantor for your application.
Where Can You Apply For Short Term Loans In Canada?
- Up to $50,000
- Prime to 46.96%
- 3-60 months
- $1,000 - $10,000
- 19.69% - 46.9%
- $5,000 - $50,000
- 6.99% - 22.99%
- Up to 84 Months
- Up to $35,000
- 9.99% - 46.96%
- 6 - 60 Months
- $1,000 - $25,000
- 7.5% - 31.5%
- 36 - 60 months
- $5,000 - $35,000
- Starting at 9.99%
- 6 - 60 Months
- $500 - $1000+
- 28% to 32%
- 3 Months
- $500 - $12,500
- 19.99% to 34.99%
- No minimum term
- $500 - $100,000
- 9.99% - 46.96%
- $300 – $35,000
- 9.9% - 47.72%
- 3 - 60 Months
- Up to $50,000
- 19.99% - 39.99%
- 6 - 120
Pros and Cons of Short Term Loans
The decision to apply for a short term loan can be a difficult one to make, as there are many different factors to consider. To help you decide, take a look at the following list of pros and cons:
Pros of Short Term Loans
- Approval is easier and quicker than most other loan types
- Applying with health finances can earn you better rates and conditions
- Short terms and small loan sums mean there’s less chance of defaulting
- Completing your installments is good for your credit report and credit score
- Small expenses and financial emergencies are easily covered by this product
Cons Of Short Term Loans
- Interest rates may be higher due to short repayment terms
- Bad credit loans are smaller, more expensive, and less adjustable
- Improper research can lead to predatory rates, scamming, and identity theft
- Defaulting on your installments may result in serious debt and credit damage
Watch Out For Short Term Loan Insurance Scams
If you’re about to apply for a short term loan, especially one that’s catered toward bad credit, it’s important to research your lender properly to confirm that they are a legitimate business.
Unfortunately, that’s because there are many predatory organizations and scam artists out there that are relying on your need for a loan. One way they will attempt to fool you is by claiming that you have to pay “loan insurance” before they can approve you.
In reality, no legitimate lender will ever ask for payment before your loan is deposited, because it is illegal to do so in Canada. If a supposed lender ever attempts this scam or seems untrustworthy for some other reason, be sure to avoid them.
Will Applying For Short Term Loans Affect My Credit?
Depending on the way you handle your loan, your credit may be affected negatively or positively.
- Hard Inquiries – When you apply for any credit product, a record of the event will show up on your credit report, leading to a hard inquiry on your credit history, causing your credit score to drop by a few points. That’s why it’s not a great idea to apply for too many loans within a short time frame.
- Full On-Time Payments – As mentioned previously, completing your installments will also impact your credit score in a positive manner.
- Missed Payments – However, defaulting with a late, incomplete, or missed payment would have the opposite effect, causing your score to drop every time.
The health of your credit is extremely important when applying for future credit products, as lenders will often use it to judge how much they’ll allow you to borrow, as well as what interest rate you would qualify for. The better your credit score is, the more creditworthy lenders will consider you, so your loan will be larger and more affordable.
Need a Short Term Loan in Canada?
If you’re looking to solve your financial issues with the help of a short term loan, don’t hesitate to contact Loans Canada. We can set you up with the best lenders and rates in your area. Simply call us today or check out our website for further information.