A short-term loan can be a good way to get some emergency cash for an unexpected trip, a home repair, an auto repair, or any other situation in which you may need a large sum of money – but you don’t quite have enough in savings to cover the cost.
But before you apply for a short-term loan or an online installment loan, you may want to consider a few basic things, to make sure that it’s the right financial move for you.
1. Whether A Loan Is the Right Choice for You
Taking out a short-term loan is not always the best option for a sudden expense. For things like home repairs, car repairs, or medical bills, you may be able to set up a payment plan through the service provider – and you won’t need a loan at all.
And, rather than taking out a loan for a sudden expense, you may also want to consider alternatives like selling some things that you don’t need, or even asking family members or friends for some extra cash. This is not ideal, obviously – but it’s better than taking on more debt that you can’t repay.
2. Your Credit Score and Expected Interest Rate
If you have a really great credit score (750 FICO+), you can expect to pay somewhere between 8-12% for an unsecured personal loan. However, if you have a subprime credit score (600-680 FICO), you may pay a 15-20% or higher rate for your loan.
If your score is below 550, you may not qualify for a short-term loan at all. You may need to turn to an alternative lender, such as a title lender, or a payday loan provider.
3. Whether or Not You Can Afford the Monthly Payments
If you have a reasonably good income, minimal debt, and you have a pretty good credit score, a short-term loan is probably a good choice for you. You will likely have no trouble making payments and may even be able to pay your loan off early, once you get some extra cash.
If, however, you have a low credit score, a large debt burden, and you’re barely making enough to pay your current debts, you may not want to get a short-term personal loan. You may end up missing payments on one of your other loans, which could have disastrous consequences for your finances.
Be realistic, and create a monthly budget if you haven’t, already. How soon can you repay the loan? Can you actually afford the monthly payments if you make some changes to your spending habits? If not, it’s probably a bad idea to take out a loan in the first place.
4. All of The Local and Online Options You Have For Getting A Short Term Loan
If you do decide to go ahead, and get a personal loan, you can apply for multiple loans with online lenders, banks, credit unions, and other such lenders.
Different lenders will offer you different loan terms and interest rates, so doing this ensures that you can pick the lender who will offer you the lowest interest rate, and the best repayment terms. In the long run, this can save you quite a bit of money.
Know What to Expect – Consider These Things Before Getting A Loan
Getting a short-term loan is sometimes a good financial move, but it may not always be the right choice. So, consider your own finances, and what you’ve learned from this article, and know what to expect when applying for a short-term loan.