Unfortunately, life isn’t always easy and it’s difficult to predict what’s going to happen to us down the road. Most of us have a basic idea of where we’ll be in the years to come, but the fact is, anything can happen. Some expenses are just too large to justify draining all of your savings. So, in the event that an emergency does arise, it’s always good to know what financial options are available to help you out.
If you’ve just experienced an emergency and need a bit of quick cash, a short-term installment loan might be a good option.
Generally speaking, a “short-term” loan refers to the process of borrowing a moderate amount of money with the intent of paying it back within a relatively short period of time, usually within 6 months to three years. Loans are granted by various types of creditors, such as banks, credit unions and subprime lenders (for those who don’t qualify at a bank). There are a variety of general loans that come in all shapes and sizes. Short-term loans, however, are usually for $5,000 or under.
Yes, you can use a short-term loan to cover whatever expenses you’d like. In fact, you can use a short-term loan for almost any type of emergency, such as:
There are a few short-term loan variations to consider before applying for a loan:
Personal loans can be both short or long-term loans depending on the term you choose, which usually ranges between 6 months to 5 years. Personal loans allow you to borrow a sum of money to cover a variety of expenses including emergency expenses.
Your lender will charge you interest on the loan, and the principal and interest are paid over regular installments until the full amount owed is repaid. Interest rates range anywhere from 15% and 45%, on average, depending on your credit score.
Short-term personal loans can be great for emergencies as many online lenders offer funding within 24 to 48 hours after approval.
Payday loans typically have very short terms. These loans must be repaid in full, plus interest, in one lump sum by the time your next paycheque arrives. Repayment terms can be as short as a week or two and as long as 62 days.
These short-term loans are available for smaller amounts, usually no more than $1,500. They’re very easy to qualify for, even if you have bad credit. You can also get access to the borrowed funds within a day, making it great for emergencies.
Payday loans are meant to be used as a last resort, as they’re extremely expensive. Interest rates can be as high as 500% or more, which is why they can be difficult to repay within such a short period of time.
If you have a credit card, you can access funds against your credit if you haven’t yet reached your credit limit. This is the fastest way to get your hands on borrowed funds since there’s no need to apply for a loan.
The credit is already available to you, as long as you have room on your card. All you need to do is use the card at an ATM and withdraw the cash.
Interest rates on cash advances are often higher than the purchase rate with your card, and can be as high as 23.99%. Interest will start to accrue on the borrowed money as soon as you withdraw it.
The vast majority of short-term loans are going to be what’s known as “unsecured” debt, meaning the borrower hasn’t offered any collateral or doesn’t need any to be approved. However, depending on the lender, you may be able to offer collateral to secure the loan and increase your chances of getting a lower interest rate.
Collateral refers to a borrower’s assets; pieces of property such as a home or a car, which can be offered up to secure a loan. If a borrower does have collateral, not only will their chances of approval increase, but the lender might give them a larger amount of money and maybe even a lower interest rate.
It’s extremely important to understand the consequences of defaulting when collateral is involved. If the loan is secured by your assets and you default on your loan, your lender will have the right to seize your collateral to cover the remainder of your debt.
To get a short-term loan quickly to cover an urgent expense, follow these steps:
Lenders require certain types of documents to assess your financial strength and creditworthiness before deciding whether or not to approve your loan application. These may include an employment letter, pay stubs, tax receipts, and bank statements. You’ll also have to show a government-issued ID to help the lender verify your identity.
To speed up the application process, make sure you have all these required documents ready for submission.
Prequalifying for a short-term loan will help you understand what types of loans you can qualify for without having to undergo a hard credit check. If you prequalify with multiple lenders, you can compare offers and choose the best option for you.
Do note, prequalifying doesn’t mean loan approval is guaranteed, but it can help you do some comparison shopping without negatively impacting your credit score.
Once you’ve narrowed down your options, you can apply for your short-term loan. Depending on the lender, you may be able to apply online from wherever you are. This is the most convenient way to apply for a short-term loan and usually results in much faster approval decisions.
If approved, you may receive your funds within a day or two, and often on the same day, depending on what time you applied.
So, as we mentioned, every lender’s application and approval procedure will be different in some way. Nonetheless, some general factors that apply to most include:
It’s clear that short-term loans can certainly be useful for emergency situations or for any other time when you need a bit of extra funding for something that you wouldn’t necessarily be able to afford otherwise. From an emergency situation to a good vacation, as long as you’re being responsible and making your payments on time, you can definitely use a short-term loan to get where you need to go.
Lisa has been working as a personal finance writer for more than a decade, creating unique content that helps to educate Canadian consumers in the realms of real estate, mortgages, investing and financial health. For years, she held her real estate license in Toronto, Ontario before giving it up to pursue writing within this realm and related niches. Lisa is very serious about smart money management and helping others do the same.
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