Short Term Loans 101: Sorting Through Your Options

Short term loans are designed to provide a small amount of cash, usually from $1,000 to $15,000, quickly. The trade-off is high interest rates and a relatively short period of time to pay it back without penalty. There are different types of short term loans, some more reasonable than others in terms of interest rates and other stipulations. When you need cash fast, take a moment to think about what type of short term loan is right for you. Avoid making a quick decision based on an urgent need for cash. Once you have an understanding of short term loans, weigh your options and then decide which solution is best for your needs. Here are some things you should know about short term loans:

Emergency Cash Loan

An emergency cash loan is a short term loan for those needing cash right away. This type of short term loan is usually for things like emergency medical expenses, car repairs, home repairs, or other unforeseen expenses. This is usually the type of short term loan that you go to a bank or credit union for first. Credit unions usually aren’t as strict as banks as far as lending guidelines.

Payday Loan

A payday loan is usually your best – and often only – option if you have poor credit. A payday loan is a short term loan with a higher interest rate than other types of short term loans. Usually, there are additional fees associated with this type of short term loan. This type of short term loan is really the one you should use only as a last resort. The two basic requirements for such a loan are proof of income and having a checking account. You can usually apply for a payday loan online or by calling a toll-free number. If you don’t have the funds in your checking account to cover the loan when it comes due, you’ll be charged additional penalty fees.

Line of Credit

A line of credit is considered one of the fairest types of short term loans. You usually apply for a line of credit through a bank. This means you have to have good credit and meet certain requirements. You usually don’t have to pay interest for any portion of the line of credit that you don’t use. The way it works is that the bank sets a certain limit, say $10,000, and you can continue to take out what you need until you reach that amount. Interest rates are usually reasonable.

Bridge Loan

A bride loan is a type of short term loan that you use to bridge the gap between expenses. If you’re selling your home, for example, and you just purchased a new home, but you’re still waiting for your old home to be sold, a bridge loan could be used to cover the duel mortgages you’re temporarily paying. Lenders usually require some form of collateral to approve a bridge loan. Going back to the example, it would likely be the home that’s waiting to be sold. You’ll still pay higher interest rates than you would with a home equity loan, but it’s a good option if you have a temporary expense you need to cover for a short period of time.

Short term loans aren’t “bad,” as long as you clearly understand what such a loan involves before you decide it’s an option for you. Emergency situations crop up from time to time and there are many legitimate reasons for needing cash right away. Just make sure you read all terms and conditions before you sign anything. Banks and credit unions tend to be your best sources for short term loans. Regardless of where you get the loan, remember that short term loans are designed for occasional emergency situations. If used sparingly, short term loans can ease the stress of unexpected expenses.

About the Author: Rita Lomack is a finance blogger living in Seattle. She writes for where you can calculate log book loan repayments.

Image: Taber Andrew Bain

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