3 Reasons Short-Term Loans Are A Responsible Option For Financial Emergencies
Short-term loans can come in a few different forms, but this particular lending category is often a first choice for people who need quick cash. Of course, as with any loan, the potential exists for misuse or longer-term financial consequences. The good news is that short-term loans aren't inherently dangerous and can often be one of the most financially responsible options for covering an emergency.
If you're facing a sudden and unexpected need for cash, here are three reasons why a short-term loan may be the best way to cover your expenses without creating more financial difficulties.
1. Better Terms Than Credit Cards
When considering your lending options, the primary factors determining the loan's cost are the APR (annual percentage rate) and term. A low APR loan may be relatively costly if you pay it off over a very long period, while a higher APR can be relatively cheap when paid over the short term. As a result, short-term loans can potentially cost less than many longer-term options.
However, credit cards are often the worst of all worlds. The average interest rate on a credit card is around 23%, making credit card debt potentially very costly. You can ultimately end up paying a surprising amount in interest if you make only minimum payments on a high-rate card. The shorter payback time on short-term loans ensures you won't fall into the low-payment, high-interest trap.
2. Quick Availability
One of the primary advantages of taking out a short-term loan is that you can often move rapidly through the application process and receive your money relatively quickly. While you'll often have plenty of time to apply for financing for longer-term projects and purchases, emergencies will rarely afford you the same luxury.
Unfortunately, putting off emergency spending can often be costly. If you need to perform an emergency repair on your home or car, you probably can't wait for a traditional loan approval process without worsening the problem. The quick availability of short-term loans lets you solve your problem right now, avoiding the costly consequences of putting off a necessary expense.
3. Long-Term Benefits
As with any other loan, most short-term lenders will report your payments to the major credit bureaus. In other words, taking out a loan to cover your emergency expense can meaningfully improve your finances over the long term. If you're working on improving your credit score, responsibly paying back a short-term loan can help you achieve this goal.
For more information on short-term loans, contact a professional near you.