If you need money for an emergency, you might consider taking a short term personal loan. It’s one of the best ways to quickly get funds.
Keep in mind that short-term loans are not limited to personal finances alone. For example, you want to take advantage of a business opportunity you came across. And you’ll need funds to make it happen. A short term loan could be the solution.
But what is a short-term loan?
A short-term loan is money that you borrow and pay back quickly, usually within a year. Often, this type of loan amounts to a few thousand dollars. But it also could be more, depending on the lender.
There are a lot of lenders who offer different types of short term loans. So, picking the one that fits your profile from the lot might be a bit exhaustive.
In this article, you’ll discover what you must consider before taking out a short term loan. You’ll also find out what factors you need to keep in mind in order to pick the right loan for you.
Short-term loans give you quick access to the funds that you need. But if you don’t get the right one, it could backfire. You could run into debt and this could affect your credit score.
That’s why there are four key questions you need to ask yourself before taking out a short term loan, such as:
- Do I actually need to borrow money?
Be absolutely sure that you need the money. Your reason for borrowing should be to fix an important issue or to make more money.
- Exactly how much do I want to borrow?
Have a clear estimation of the expenditures you need the loan for. This prevents you from borrowing more money than you need. As a result, you’ll pay less fees.
- How long would it take me to repay it?
Take a look at your monthly cash flow. How much can you set aside for the loan repayment and for how long? Do you need to reduce your outgoings?
- How much interest am I willing to pay?
You should have an idea of how much interest you can afford to pay on the loan.
Having clear answers to these questions puts you in a better position to choose the right loan and lender.
As to be expected, lenders don’t just give out loans to everyone who applies. They’ll first analyse your application to see if you fit their requirements. If so, only then will they approve your application.
Here are a few factors that they look into:
- Your personal debt ratio. They want to know how much of your credit you’re using. If your credit rating isn’t good enough, they might reject your application.
- Business debt. If your business debt is higher than the average in your industry, they may reconsider approving your loan application.
- Your revenue trends. You have a higher chance of getting a loan if you have a healthy projected income.
- Debt coverage. Lenders will check if you have other personal or business debts. If there’s too much debt, they may reject your application since it may hinder you from repaying their loan.
Know that your credit score gets negatively impacted whenever your loan application is rejected. To avoid this, you have to ensure that you are eligible for a loan from a particular lender before applying.
In general, here are things you need to qualify for a short term loan:
- You must be an Australian resident or citizen aged 18 or above
- Credit reports
- Identification documents
- Banking history for the last 90 days
- Personal and business tax returns
- Proof of regular income
Note that these eligibility criteria differ from one lender to another. That’s why you should check a lender’s specific eligibility criteria before trying to get a loan from them.
As mentioned, there are different types of short-term loans that you can avail of. They have varying fees that depend on the interest rate and the loan term.
Two of the short term loans that people commonly apply for are a fixed-rate loan and a variable rate loan.
In a fixed-rate loan, your interest payments are calculated as an overall amount when you take the loan. Then, your repayments will be spread evenly across the duration you are taking the loan for.
A variable rate loan is different. Here, your interest payments may go up or down, depending on fluctuations in the economy. They are less predictable than fixed-rate loans. However, you can still estimate how much you are to pay every month.
There could be other applicable fees, depending on the lender. Also, keep in mind that the longer you borrow, the more money you will need to repay the loan.
Knowing who you’re borrowing from is also very important. When you know how a lender operates, you can easily decide if they are the right fit for you.
Borrowing from the right lender will save you a lot of time and effort in the long run.
So, read the terms and conditions attached to their loan offer and see if you can abide by it. Check out their FAQs and make enquiries if something isn’t clear to you. You can also use the information to gauge if the lender is reputable.
You can also find out more about a lending company by checking their ratings. If other customers had a good experience with them, there’s a good chance that you will, too.
That said, an ideal strategy is to first choose the right loan product and then check if the lender is reputable. Remember that the right company should have a straightforward offer – it should be communicated in a clear manner and without any hidden charges.
Short term loans are not for everybody. If you don’t have an urgent need for it, you shouldn’t take one at all.
But if you do need a short-term loan, you have to know exactly how much you want to borrow and for how long. You also have to be aware of the fees you will have to pay the lender. And don’t forget to read up about the lending facility.
The best way to avoid running into debt or any legal situation involving a loan is to arm yourself with information. When you do this, your loan application will not only get approved, you’ll be able to pay it back in time.
If you need further assistance, Unsecured Finance Australia is here to help. Apply online and you can receive your approval within 24 hours.
Find out more by taking a look at our unsecured business loans.