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📅 Last Updated: August 26, 2022 ✏️ Written By Lisa Rennie 🕵️ Fact-Checked by Caitlin Wood
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Sometimes we’re well equipped to cover unexpected expenses, and other times we’re not. During those times when our bank accounts aren’t adequate enough to pay for large expenses that suddenly come our way, there are short term loans in Ontario available to help.
For more information about loans in Ontario, click here.
What Are Short Term Loans in Ontario?
As the name suggests, short term loans are those that provide certain loan amounts that must be repaid in full within a short period of time. Terms lengths can vary but are generally for one to two years.
The loan balance is paid back in installments, with each payment covering a portion of the principal and a portion of interest. The interest rate charged will affect how much money will inevitably have to be repaid and will vary from lender to lender in Ontario. That said, interest rates for short term loans in Ontario tend to be a little higher than standard loans that have much longer term lengths.
Read this for a look at installment loans in Ontario.
Why Take Out a Short Term Loan in Ontario?
There are several situations where a short term loan in Ontario would very much come in handy, including the following:
- Medical emergencies
- Car repairs
- Home improvements
- Unexpected travel expenses
- Large family vacations
- Building credit
Truly, short term loans can be used for just about any situation that may arise.
How Do Short Terms Loans Differ From Payday Loans in Ontario?
Because both payday loans and short term loans in Ontario are only taken out for very short periods of time, many consumers may confuse the two. However, their relatively short terms are where their similarities end.
Repayment
One of the biggest differences between the two loan types is their repayment requirements. While short term loans are designed to be paid back in installments until the full amount is paid off, payday loans must be paid in one lump sum – plus interest – by the due date. Payday loans are typically due for full repayment by the time your next paycheck comes in, which is why they are named “payday loans.”
Take a look at this infographic on the Payday Loan Cycle.
Interest Rate
Another notable difference between the two is the interest rate charged. Generally speaking, payday loans come with extremely high-interest rates and are considered among the highest of all loan types. Many payday lenders in Ontario charge their borrowers as much as 500% or more, depending on various factors.
While short term loans come with rates that are higher than conventional loans, they are typically much less than payday loans, making them a more affordable option.
Wondering if you can beat your lender’s interest rate? Find out here.
Approval Process
Short term loans are usually a little more difficult to get approved for compared to payday loans, though they are still somewhat easier to get approved for compared to conventional loans with longer terms. Payday loans require little more than being the age of majority, having an active bank account and contact information, and being employed.
Short term loans require a little more investigation on the part of the lender, who will usually check things such as credit scores and debt load, in addition to income.
Pros and Cons of Short Term Loans
There are several pros and cons that come with short term loans in Ontario, which should be carefully assessed before you decide to apply for one.
Pros
- Easy to get approved for
- Quick access to cash
- Cover the cost of an emergency
- No credit check options
- Bad credit is often accepted
Cons:
- Higher interest rates compared to traditional loans
- Risk of perpetuating the debt cycle
- Risk of being scammed by shady lenders
Before you decide to take out any type of loan, be sure to carefully weigh their pros and cons first.
To discover more good and bad elements of short term loans, check this out.
What if You Have Bad Credit?
Credit scores play a key role in loan approval. Ideally, borrowers in Ontario should go into a loan approval process with a good credit score. This will make approval with a lower interest rate more likely. Lower credit scores limit the chances of loan approval with lower rates.
That said, it may still be possible to get approved for a short term loan in Ontario with bad credit. In this case, you may want to work with lenders who deal specifically with low-credit borrowers and can be easily found online.
These lenders in Ontario will place more weight on other factors aside from credit scores, including income, employment status, and debt load. If you have a secure full-time job with a high income and have a relatively low debt load, you stand a much better chance of getting approved.
It should be noted, however, that getting a loan with a bad credit score will almost certainly come with a much higher interest rate, which will make the overall loan more expensive.
Want to know how your credit score is calculated? Check out this infographic.
Can Short Term Loans Be Guaranteed?
When looking online for a short term loan in Ontario, you may come across some lenders who guarantee approval. While this might lure you in, it’s important to be very wary of such promises, as they may just be a ploy to scam you. It’s almost impossible to guarantee loan approval, especially without obtaining certain pieces of information from a borrower.
Learn about loan insurance scams with this article.
If a lender in Ontario promises loan approval, this is likely a scam. Unfortunately, there are plenty of lenders out there who exist solely to prey on unsuspecting victims. Always be on the lookout for fraudulent activity among lenders, as it exists and can put you in a precarious financial situation if you fall for their scams. The biggest red flags of a scam is guaranteed approval, so if you see this promise, you would be well advised to look elsewhere.
Frequently Asked Questions
What loan sizes are available for short-term loans?
Short-term loans come in many shapes and sizes. $1500, or less, is the typical loan amount. The terms of these types of loans are usually 2 to 8 weeks, although up to 3 months is not uncommon. Short-term loans can take the form of a payday loan, a credit card, or a personal loan. Shorter terms mean higher interest rates. Credit cards and personal loans usually clock in between 10% and 36% APR, not exceeding the max allowable rate of 60%. Rates of 500% or more are typical of payday loans since they have the shortest terms in this category.
Can I pay off my short-term loan early?
Early payments on a short-term loan will usually save you a decent amount of money. For instance, paying your credit card in full during the grace period (before the statement due date) means no interest charges. However, be mindful of the fact that cash advances on your card do accrue interest from day one. For payday loans in Ontario, a lender cannot charge you any kind of penalty for paying off your loan early. If your personal loan is based on an open-end contract, then you may pay it off early without penalty. However, if it’s a closed-end agreement, then you may incur a penalty for settling the debt before it’s due. Check with your loan provider to confirm these details.
I have bad credit. Can I still qualify for a short-term loan?
Getting a short-term loan with bad credit is still possible. Some providers don’t use a credit check to approve your short-term loan. Other metrics that check your overall financial health are used to determine your ability to repay. This typically means you’ll need to do additional verifications for your identity, banking details, address, and source of income. A vehicle title loan can be a short-term loan that’s easier to get approved for since you are providing a form of collateral. Likewise, a secured credit card is also easier to qualify for since it is backed by your security deposit.
Find the Short Term Loan You Need Today
If you’re in a position where an extra sum of money would come in handy, you may find short term loans in Ontario very useful. There are plenty of loan options out there as well as lenders who offer them. To find the right short term loan for you, be sure to get in touch with Loans Canada to discuss your options.
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