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Being a credit user comes with plenty of benefits, especially in an urban environment like Hamilton, where the cost of living can be pretty high. Of course, the main benefit of being a credit user is that you can access a variety of credit products, any of which can come in handy when you have expenses to cover.
One of the most useful credit products you can access in Hamilton is the short term loan. Care to learn more about how this type of loan can help you? If so, keep reading, because we have some information for you.
Learn how to use a short term loan to tackle any expense, click here.
What Qualifies as a Short Term Loan in Hamilton?
Every credit product is different in its own way. For instance, a typical credit card comes with a revolving credit limit that you can withdraw from as you need and pay back monthly, with the option of making more than one payment per month or making minimum payments, if you desire.
A short term loan, on the other hand, is a fixed amount of cash that you can apply for through most prime and subprime lenders in Hamilton. If you’re approved, the money would be deposited directly into your bank account a few business days later. You’ll then repay the borrowed funds over time through divided installments, which include an interest rate (your lender’s service fee).
These loans are labeled as ‘short term’ because their repayment periods only last several months to a couple of years, compared to other installment-based loans, which can be stretched out over many years. Also, short term loans are relatively small, generally a few hundred to a few thousand dollars.
Where Can Someone Find a Short Term Loan?
As mentioned, there are three kinds of short term loan lenders that you will see in Hamilton. Each source of credit has its own merits and drawbacks, so be sure to do a lot of research before you make your choice.
Prime Lenders
A prime lender is a top tier financial institution, such as a credit union or bank. If you’re qualified, prime lenders can usually offer you more money, varying levels of interest rates, as well as more adjustable repayment plans.
However, prime lenders have tighter restrictions when it comes to their applicants, making even a short term loan more difficult to qualify for. More often than not, you must have a decent income and job history, a good credit score, and even some security to qualify for a favorable loan.
Do you know what a credit union is? Find out here.
Alternative Lenders
Alternative lenders are private companies or lenders that deal specifically with clients that have bad credit. Here, short term loans may be smaller and more expensive due to higher rates.
That said, these types of loans are much easier to be approved for, so clients that have low incomes, unhealthy credit, or who have recently undergone financial delinquency (consumer proposal, bankruptcy, etc.) won’t have as much trouble when applying.
Payday Lenders
During your search for a short term loan in Hamilton, you may come across payday loan lenders. Although payday loans are quite different from everyday short term loans, they are also a few similarities that can cause some confusion, so they are worth mentioning here.
For example, a payday loan is also quite small, only $100 – $1,500 in most cases. It must also be paid back in a relatively short window of time and the funds will usually be transferred directly to your bank account following approval.
Check out this article to read about how Ontario residents are having trouble dealing with payday loan debt.
However, payday loans are very different because:
- To be eligible, you only need to older than 19, have a valid Ontario address, a steady job, and an active bank account.
- Even those with bad credit, lots of debt, and otherwise unhealthy finances can receive their loan within 24 – 48 hours of approval.
- The final loan payment, including interest and fees, will be debited as a lump sum directly from your bank account on the allotted due date.
- The average repayment term is only 14-days long, non-negotiable, and involves a hefty penalty if your account displays insufficient funds on the collection date.
- Lenders may charge interest rates as much as $15 per $100 borrowed (the legal limit in Ontario)
- They present a higher risk of unmanageable debt, predatory rates, scamming/fraud, and identity theft.
Essentially, a payday loan is only appropriate if you have weak finances, have recently experienced a bankruptcy or another debt-related issue, or if you have a financial emergency on your hands.
Although extensions and rollovers are not permitted in Ontario, a payday loan can result in severe debt, so you must also be comfortable affording all the associated costs within 14 days. Also, if you are planning to apply with a payday lender, be sure to research the company properly to confirm that they are a lawful organization.
For more information about payday loans, check out this infographic. What Does the Application Process Involve?
One of the best things about short term loans is that they are easier to be approved for than larger or longer-lasting loans. Nonetheless, it’s important to prepare yourself and your finances for the application process, as your potential lender needs to be certain that you can handle the debt involved before they can approve you.
As such, they may request to inspect certain aspects of your personal and financial profile, including but not limited to your:
- Income and savings
- Employment record
- Recent/current debts
- Credit report (including score, ratings, history, etc.)
- Cosigner’s profile (if any)
- Collateral (if any)
Since short term loans in Hamilton present a lower level of risk, most lenders will approve you as long as you have decent financial health. That said, how prepared you are for the application process can affect how much money you’ll be approved for, what interest rate you’ll be given, as well as how much negotiating power you’ll have when it comes to your repayment plan.
Generally speaking, the best loan results can be seen when you apply with a decent monthly/yearly income, a record of steady employment, a credit score within the good range (660 – 900), and a low amount of outstanding debt.
If you’re applying for a particularly large short term loan or you have lesser financial health, it can help to find a stronger borrower to cosign your application or to offer up an asset as collateral, either of which will also reduce the risk for the lender.
Is ‘Guaranteed Approval’ a Real Thing?
Remember, when it comes to some credit products, including short term loans, you may find lenders who are more or less willing to approve you than others, depending on what your finances look like. However, be aware that no legitimate lender will ever offer you a 100% guarantee of approval, no matter who you are. It’s best to avoid any supposed lender who says otherwise because they are likely trying to lure you in by using your need for credit against you. Typically, they will ask for an advanced payment or loan insurance in exchange for the loan, then steal your money and commit fraud using your identity.
What Are the Pros and Cons of Short Term Loans?
Still undecided as to whether a short term loan is right for you? Don’t worry, to make your decision easier, just take a look at the list of pros and cons that we’ve provided.
Pros
- A simple solution for your smaller but necessary expenses
- Qualifying is easier and approval is faster than larger loans
- Short repayment terms and low loan amounts mean there’s less chance of falling into unmanageable debt
- Lenders are more willing to negotiate with you and adjust your repayment plan, even if you have bad credit or unhealthy finances
Cons
- Shorter terms sometimes result in higher interest rates
- Smaller loan amounts may not be sufficient to cover your current expenses
- Scamming, fraud, and identity theft are possible if you don’t do proper research
- Defaulting on payments can lead to penalties, added interest, a reduced credit score, and debt problems all around
Short-term loans, the good and the bad. Click here to learn more.
What’s the Best Way to Spend a Short Term Loan?
Despite a short term loan presenting a relatively low amount of risk for you in comparison to larger and more expensive credit products, it’s still imperative to only spend the funds on things that are essential and that you can comfortably afford.
We recommend that you use your short term loan to:
- Finance essential vehicle costs (fuel, repairs, etc.)
- Pay off small debts
- Deal with unexpected travel expenses
- Cover small-scale financial emergencies
Find Your Short Term Loan Now
If you’ve had no luck finding the right short term loan in Hamilton, don’t panic, because you can now make Loans Canada your go-to spot. Contact us today if you’re looking for more information or apply below when you’re ready to start the process!
