One thing that’s certain for almost everyone on this planet is that human needs are insatiable. There will always be times when one will have a financial need or project without the requite amount to take care of it. When such occasions come up, there are different options that one is faced with. You can either solicit funds from friends and family or look for where to borrow money.
These projects or needs may be short term or long term, and this will determine the type of assistance the person will require. Let’s say for example, that one wants to embark on building a home. This is not a project for which you can solicit funds from friends and family; it is a long term project. If, on the other hand, you need to quickly offset a bill and are short on funds, you can easily solicit help from friends and family.
In this article, we will explore different types of short term loans and how one can effectively apply for them. Stay with us so that you can get a basic understanding of how these things work.
What is a Short Term Loan?
A short term loan is a loan that has to be repaid in not more than a year, and it is usually an unsecured loan. These types of loans are often best repaid within 2 to 6 months.
Another characteristic of a short term loan is the amount, which is usually small; like a few thousand Swedish Kroner and above. It is not commonplace to have this type of credit facility for NOK50,00 and above.
Options for Short Term Loans
The following are options for short term loans:
Credit Cards
Credit cards are known as revolving loans because they allow the holder to keep borrowing money as long as they keep paying it back within the stipulated time period. Usually, these cards have an interest free payment period of 45 to 50 days. This means that if you pay what you owe within that period, you won’t have to pay interest on the loan.
It is good to bear in mind, however, that this option can become costly if you do not repay when it is due. This is because the effective interest on this option is usually between 20% and 30%. This is therefore not an option for anyone who is not sure of repaying their debt within the stipulated period.
Micro and Small Loans
These are loans that fall below NOK40, 000 and must be repaid within a short period of time. There are banks and financial institutions that specialize in giving these types of credit. These are basically facilities that come in handy for emergencies that may occur at home or in the course of day-to-day activities.
These credits are often available whenever you want them, but they are not necessarily the best option because of the high interest rates. The rates are often as high as 199.80% over the course of 12 months if you stretch the payment for that long. This is way above what you pay with credit cards or consumer loans.
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Consumer loans
This option cannot be said to be strictly short term because the repayment period can range from 1 year to 5 years. Additionally, the loan amount ranges from NOK 5,000 to NOK 600,000. The average effective interest rate on a consumer loan is 14%. The reason why this is an option for a short term loan is because you can actually choose the shorter repayment duration when applying for the credit if you so desire.
Below are ways that you can pay off your credit in a shorter amount of time:
- You can increase the amount per instalment
- You can make extra payment whenever you have the means to do so
- You can pay off the whole amount before the due date – Note that you would not have to pay any penalty for paying off your debt earlier than the due date, all thanks to Section 53 of the Financial Agreement Acts.
With these options that we have listed above, you can use a consumer loan as a short term credit and reap the benefits of low interest rates.
Tips for Taking out a Short Term Loan
Oftentimes, people need short term credit for emergencies and are not usually calm or patient enough to make the right decision. That is why we are sharing the tips below to help you prepare ahead of time, whenever you will need this credit facility:
Carry out Comparison Shopping
Check out the many lenders that offer short term loans, look at their terms and conditions and their interest rate. Ensure that you shortlist a minimum of 3 lenders so that you have enough data for comparison.
Things to consider include the following:-
- Highest loan amount
- Repayment duration
- Interest rates
- Administrative fees and any other fee that may accrue in the course of the loan period.
Calculate the Risks Involved
Remember that this type of credit comes with different fees and high interest rates. It is therefore important that you understand all that it entails so that you don’t solve a small problem and get into a bigger one.
Ensure that you will be Able to Repay
Most times, due to the ease of accessing these credits, people tend to take out amounts that they cannot afford to repay. This is what leads to debt cycles that hold people in bondage. Therefore, ensure that you take out the amount you can repay in the stipulated time.
Read and Understand the Fine Prints
Make sure that you read the loan agreement and understand all the terms and conditions. Make sure you get clarity for any clause or condition that you do not understand; it is always better to be safe than sorry.
Factors to Consider when Choosing a Lender
Much as we all agree that short term loans can be lifesavers (even literally), one may end up in more trouble than before they took out the loan. One of the factors that may contribute to a negative outcome is the lender you sign up with.
Find below, therefore, things to bear in mind and do as you go shopping for a lender so that you get the best credit facility for you:
Loan Amount
Determine how much you need so that you can narrow your search to lenders who are able to approve the needed sum. Note that there are lenders who only give out microloans, which may not be sufficient to meet the need that warrants the credit. So, save yourself time and stress by going straight to those who will give you the required sum.
Interest Rate
Find out the interest rate that the lender is willing to give because interest rates vary from one lender to the next. This is also why it is necessary to do comparison shopping. It will help you to compare different lenders until you find one with favourable interest rates and other fees that are associated with the loan.
Repayment Schedule
Even though we are talking about short term loans, some lenders may give repayment periods that are not conducive to the amount borrowed. In the course of your comparison shopping, look out for the lender that will give you the amount you want, to be repaid within your most desirable and convenient repayment period.
Reputation of the Lender
It is very important that you check out the reputation of the lender you are looking to sign off with. Ensure that you read online reviews and what past clients have to say about them. You can also check them out on independent review sites such as BBB (Better Business Bureau) to find out whether there are any complaints against them. Furthermore, ensure that they are licensed to operate in your state or region.
Conclusion
Being knowledgeable when it comes to financial matters is very important; it can save you a lot of problems. We have shared some important information about short term loans. Bear them in mind as you consider taking out a loan or even before you do so.
