Short-term loans provide a great source of quick cash for those who need to fund a sizable purchase, cover some medical expenses or car repairs, or even take a vacation. These loans are often easy to get, have a quick approval time, and are funded within just a day or two.
But, as with any loan, it is important to do your homework. Any time you borrow money from a lender—or even a family member or friend—you need to be prepared to meet your end of the deal and pay back what you borrowed (plus any fees and interest). Using short-term loans comes with great responsibility. In this article, we’ll tell you what you need to know.
Short-term loans are a type of financial assistance designed to be borrowed and repaid over a brief period. These loans help manage immediate financial needs, but they are all intended for slightly different purposes. Here are three common types of short-term loans:
As we mentioned earlier, short-term loans are best used when you need cash quickly. Here are some of the best—and worst—scenarios for using short-term loans.
Short-term loans can be a lifeline when faced with urgent costs you didn't expect, like a sudden medical issue or essential home repairs after a storm. They provide the necessary funds quickly, ensuring you can address these emergencies promptly without waiting for a traditional loan approval.
Sometimes, there may be a mismatch between when you need money and when you'll receive it, such as when awaiting a paycheck or client payment. In these cases, a short-term loan can help cover immediate expenses like bills or rent, keeping your finances stable until your income arrives.
Using short-term loans for non-essential expenses, such as buying the latest electronics or funding a vacation, is risky. While these purchases are enjoyable, they do not justify the high fees and interest rates associated with short-term loans and can lead to unnecessary debt.
Relying on a new loan to pay off an existing one can lead to a dangerous cycle of debt. This practice, often called "rolling over" a loan, accumulates more fees and interest, making it harder to break free from debt. Always seek other financial strategies or professional advice before considering this option.
As we shared earlier, taking out a short-term loan requires some responsibility on the part of the borrower—specifically, paying off the loan in accordance with your loan terms. So, before you take out a loan, take some time to assess your family budget to ensure you are spending within your means. If you are thinking of taking out a loan to fund a big purchase, consider if you can postpone the purchase for a while, focusing in the meantime on beefing up your savings account.
Here are some additional strategies on how to borrow responsibly.
Borrow only the amount you really need and can repay without strain. Assess your financial situation and determine the smallest amount necessary to cover your immediate needs. This approach helps ensure that your loan remains manageable within your normal income cycle, preventing financial stress or the need for additional borrowing.
Before accepting any loan, fully understand all the terms and conditions. This includes interest rates, fees, repayment schedule, and late or missed payment penalties. Being in the know about these details can help you avoid surprises and make informed decisions, ensuring that the loan fits your financial circumstances.
Effective loan management involves planning for repayment even before you receive the funds. Revisit your budget to ensure it includes your loan repayment amounts, and consider setting aside money in advance. This proactive approach helps ensure that you meet your repayment obligations on time, avoiding late fees and potential damage to your credit score.
Sometimes, despite our best intentions, things happen and we are unable to meet our loan obligations. Things like job loss, a serious medical condition, or other constraints can get in the way. When this happens, don’t simply ignore your loan responsibility. Consider doing the following a non-negotiable:
Once you have signed and submitted your loan agreement, you are responsible for the terms outlined for your loan. So, to ensure you are not surprised along the way and don’t stumble upon a pitfall, do your homework upfront and know what you will be accountable for.
Are you in need of a short-term loan? Cash Store can help. Complete our prequalification application to get started.
The content on this page provides general consumer information or tips. It is not financial advice or guidance. Each person’s circumstances are unique. The Cash Store may update this information periodically. This information may also include links or references to third-party resources or content. We do not endorse the third-party or guarantee the accuracy of this third-party information. There may be other resources that also serve your needs.
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