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If you’re a credit user living on Prince Edward Island, then chances are you’ve heard about different types of loans and the ways that each of them can influence your finances. One of the most common types is the short term loan.
The Many Uses of a Short Term Loan
Meant to be paid off in even segments over a period of 1-3 years, short term loans can be used for almost any expense, including but not limited to:
- Educational costs (tuition, books, individual courses, etc.)
- Consumer items (groceries, clothing, gifts, etc.)
- Purchasing a used vehicle
- Travel or vacation costs
- Buying new furniture and/or household appliances
We also recommend you use your short term loan for more important costs, such as:
- Renovations, repairs and general maintenance for your home
- Medical bills, financial emergencies and other unpredicted costs
- Car-related expenses (repairs, snow tires, gas, etc.)
- Big purchases that you’d rather not pay for with your credit card or savings
Ever wonder what the true cost of borrowing is? Click here.
Related Questions
There are a few general questions about short term loans that you should ask your lender, financial advisor or the other people you know, like:
Can I request any amount of short term loan money? Not quite. Generally, short term loan amounts do not exceed $5,000. These loans should be paid off anywhere from a few months to a few years following approval, unlike a mortgage, which can take over 20 years to pay in full.
What is an interest rate? Since lenders are businesses, they must charge a certain fee on top of their loan payments in order to make a profit. This is known as an “interest rate”. In other words, it’s the cost of borrowing. Before you apply, always ask your lender to calculate exactly how much your loan will cost over time when you factor in the interest rate (plus all other fees).
What do P.E.I. lenders look at when considering borrowers for short term loans? Every lender’s process is different for every credit product they offer. Since short term loans are smaller than others, their approval standards won’t necessarily be as strict as they would for larger loans. However, a typical application process might include an examination of your:
- Employment record
- Banking information and income
- Debt and payment history
- Credit report, credit score, credit rating and credit history as a whole
Do all lenders perform a credit check during the application process? Not always. Most lenders only want to make sure that you’ll be able to pay them back in full by your designated due date. That being said, it’s best to improve your credit as much as possible, just in case they do perform a credit inquiry.
What happens if I don’t have good credit? If your lender does conduct credit checks, your credit health can make a huge difference to your approval chances and interest rate. Good credit (a credit score of 650 or above) will help you secure a loan and a lower interest rate, making the loan easier to afford. Bad credit (620 or lower) will have the opposite effect, diminishing your approval chances, raising your interest rate and ultimately making the loan less affordable.
Why did my lender ask for “loan insurance” before guaranteed approval? Unfortunately, it’s because they aren’t a real lender. It is against the law in Canada for any lender to demand payment before your loan is approved and transferred into your bank account. If that’s the case for you, don’t give them any of your information. No legitimate lender can ever give you an absolute guarantee of approval. Walk away and report them to the proper authorities.
Improving Your Credit and Approval Chances
Let’s say that your P.E.I. lender does perform a credit inquiry. The healthier your credit looks, the less risky you’ll seem and the cheaper your loan will be. Here are a few things you can do to both improve your credit and make the most out of your short term loan:
- Look for the right lender – Every lender has different standards and charges different fees. There are also many scam artists out there posing as lenders. That’s why it’s important to do extensive research before settling on the first lender you come across. Always look at customer reviews and search for their name in the Better Business Bureau database. Comparing lenders in Canada? Try this.
- Draw up a proper budget – Before applying, always be certain that you can actually afford your short term loan. Once you’ve found the right lender and determined the exact cost of your loan, calculate it into a budget with all your other regular expenses. Can you still afford your loan? If not, hold off until you can save up more money.
- Fix errors on your credit report – Getting a free annual copy of your credit report is one of the best things you can do prior to applying. While not all lenders perform credit checks for short term loans, it’s still a good idea to dispute any errors you find in your report, as they can damage your credit score.
- Take care of your other debts – Another essential step toward gaining a lender’s approval is to show them you’re good at dealing with your debts. Paying off your prior debts first is not only a way to display your creditworthiness, it’s a way to make sure you don’t end up in even worse debt in the near future.
Take a look at this infographic for even more information about credit scores.
Positive and Negative Aspects of Short Term Loans
Before you go applying for short term loans, it’s best to be aware of the positive and negative aspects that come with them, just to be certain you’re making the right choice.
Positive Aspects:
- They’re fairly easy to be approved for because of their small amounts and shorter payment periods.
- Your credit is not always an issue. Your lender generally just wants to know that you can afford your payments (a confirmation of your income is often necessary)
- Depending on the size of your loan, it won’t take very long to receive after approval has been reached.
- They are a far safer option than choosing payday loans in Prince Edward Island.
Negative Aspects:
- They sometimes come with higher interest rates than other credit products.
- They can cause bad debt if not managed responsibly and if you begin to rely on them for every expense you have.
- Scam artists sometimes use the idea of these quick, easy loans to cheat borrowers out of their money. Always verify that your lender is legitimate before giving away your information.
For more information about short-term loans or other financial advice, try credit counselling in Prince Edward Island.
Frequently Asked Questions
What is considered a short-term loan?
There’s a wide variety of short-term loans. They are typically no more than $1500. The repayment period typically lasts 2 to 8 weeks, up to 3 months. Personal loans, credit cards, and payday loans are among the more common types of short-term loans. Due to their short terms, loan providers usually charge higher rates on these types of loans. Payday loans are the highest, sometimes exceeding 500% APR. Personal loans and credit cards generally have rates of between 10% to 36%, not exceeding the federal limit of 60%.
Am I eligible for a short-term loan if I have poor credit?
Yes, some lenders will extend a short-term loan to those with bad credit. There are providers of personal and payday loans that do not check your credit score. Instead, they’ll determine if you qualify by checking your overall ability to repay. However, you’ll need to provide additional documents to verify your identity, banking details, address, and income source. 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. In the same vein, a secured credit card is easier to qualify for even with bad credit since it’ll be backed by a security deposit and will help rebuild your credit.
Can I pay off my short-term loan early?
Paying off a short-term loan before it’s due will generally save you money. A good example is the grace period on credit card purchases where you pay no interest if you pay in full before the next due date. That said, be careful with cash advances on your card because they do accumulate interest from day one. With payday loans, the province of Prince Edward Island bars lenders from charging borrowers a prepayment fee. Personal loans with flexible or open-end contracts will have no prepayment penalty. On the other hand, loans with fixed-term or closed-end contracts will have a penalty for paying early. It’s best to contact your lender to determine which kind you have.
How Loans Canada Can Help You
Residents of Prince Edward Island, including yourself, can find plenty of uses for a good short term loan. Here at Loans Canada, we can help you get approved with the right lenders for your financial situation.
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