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schedule 7 min read | August 6, 2021

When are Short Term Online Loans a Good Idea?

Written by Daniel Azzoli

Facing an unexpected emergency expense and have no other means to pay for it? This may be just one of many examples of times when applying for short term loans online may make sense.

With a well-stocked emergency fund, you may not have as many financial worries as you would otherwise. Should a surprise cost come your way, you can tap into your savings quickly and move on with your life — leaving the stress of your unexpected bill or repair behind.

But if you’re like 40 percent of Americans surveyed in 2021 who have less than $300 in a savings account, an unexpected expense may spiral into an emergency if it’s not looked after right away[1].

Without savings to act as a financial emergency net you can fall back on, applying for short term loans online may be a good alternative to help you temporarily, so that you have what you need to tackle your unexpected emergency expense.

But dig a little deeper, and you may find that they aren’t the best fit for every bill or repair.

What are Short Term Online Loans?

Question mark in front of yellow background.

A short-term loan is a kind of a personal loan you get online for a smaller period of time. It may also have relatively fast processing times.

The repayment schedule, which isn’t intended to last a long period of time, is what gives it its name. Here, “term” refers to how long it will take you to completely pay off your loan. So, a “short term” means you won’t get that much time to pay it all back.

Now, how much time you have depends on the type of short-term loan you get.

  • If it’s due back over a series of installments that coincide with multiple pay dates, it’s an installment loan. While this may give you some time to repay your loan, it’s still less time than long term personal loans.
  • If your payments coincide with a periodic statement based on your use and any applicable finance charges, it’s a line of credit. A line of credit provides a pre-set amount of money you may withdraw funds from as you need.

Want to learn more about the essential details of a line of credit? Click here!

Some of these short term loans may also be called small cash loans. Since short term loans online give you less time to repay what you owe, they tend to provide a relatively small amount of money for you to use towards your financial needs.

Why You May Consider a Short Term Loan Online

person looking at short term loans online on their computer.

Applying for small loans online may tend to be a helpful solution for many people for legitimate reasons. Here are some of the reasons why someone might apply for online short term loans.

1. Speed

While some brick-and-mortar financial institutions may process your request over a few weeks, a short term loan lender may do it in a matter of days. This can be especially useful if your financial emergency or expense is a high priority for you, where speed is of the essence. Choosing small cash loans online means that you may receive relatively immediate financial assistance in the sense of getting your funds quickly.

2. Convenience

Life doesn’t slow down just because you’re facing a financial emergency. You may not always have time to sit through a face-to-face appointment with a loan manager. Instead, with certain financial institutions, you may be able to submit an online application for a loan or line of credit 24/7. This means you won’t have to rearrange your life around a financial institution’s schedule. You’ll be able to turn on your computer or smart phone to get started — whether it’s 2 o’clock in the morning or 2 o’clock in the afternoon.

3. Eligibility

Unfortunately, one of the side effects of bad credit is not getting the funds you need.  For many Americans, their credit score is the reason why they have been denied a personal loan or line of credit. One of the biggest perks of using online small cash loans is that your score may not be used as the only determining factor under consideration for your online loan application. This may mean that an online loan is an option even if your credit score isn’t perfect or you don’t have a credit history.

What to Watch out for Before Applying for an Online Short Term Loan

Despite the emergency you may be facing, it is always a good idea to get educated about the loan you are considering applying for, regardless of it’s an installment loan, line of credit, or other type of loan. Here are some things you may need to watch out for before applying for short term loans online.

  • Cost of the Loan: Short term loans may have higher interest rates and other costly charges. To reiterate, always be sure you are aware of the rates and other charges that come along with the short term online loan you plan to apply for so that you aren’t caught off guard by seemingly hidden fees.

The actual cost of your online loan may depend on a variety of factors, including how early you pay off your loan.

  • May Not Build Credit History: If you’re looking to have a positive effect on your credit history with small cash loans online, you may be in for a disappointment. Some short term loan lenders may only share late payments to a credit reporting agency. However, some financial institutions may report your payment activity to a credit bureau, so make sure you do your research on the loan and online loan lender beforehand.
Frowning woman in glasses looking at small loans online

When Should You Apply for Small Online Loans?

Generally speaking, you should think carefully before applying for a short term loan. Although the process to apply may be quick, these loans can be expensive and can sometimes be challenging to repay if you don’t properly budget for them.  

That being said, some circumstances when you may consider applying for a short term loan include:                                                     

  • When it’s for urgent emergency expenses.
  • You’re absolutely certain you can afford to pay back your loan, plus all fees and/or interest, on time.

Are There Alternatives to Applying for Small Cash Loans Online?

If you don’t think you’ll be able to juggle a short term online loan and your other payment obligations at the same time, yet are still in need of financial assistance to deal with your financial emergency or emergency expense, there may be other options. Below, we break them down into alternatives that may provide some short-term relief, as well as long-term tips that may help you avoid needing short term loans in the future.

What Can You Do Right Now?

Talk with Creditors: Let your utility provider, landlord, or cable company know you’re struggling with a temporary cash-flow shortage. You may be able to get an extension on these bills, so you don’t have to dip into your savings. 

Sell Something: You may be able to generate some extra money by selling your unwanted or unnecessary possessions for reasonable sums of cash. Hold an impromptu garage sale or go online to post a digital classified ad on sites like eBay, Craigslist, or Mercari to earn some quick cash online. Be sure to do thorough research on the items you plan to sell and make an informed assessment of their value in the current condition they’re in, so you can maximize how much money you receive for them.

What Can You Do in the Upcoming Years?

Think Proactively: Part of good money management is looking into the future, so you might anticipate how you’ll have to spend your money. Recognizing the possible expenses you might face, whether an emergency expense like a car breakdown or a regular expense, is the first step to making sure you can handle them. You may even be able to survive financial emergencies with these tips.

Create an Emergency Fund: The concept behind an emergency fund is simple: put money away now, so you’ll have money later. If you fall on hard times, you may tap into these funds to help you get by. Not saving for a future emergency may be one of the bad financial habits we learn from our parents, but it’s an easy one to fix. Sit down with your budget to see how you can save more money each week. It may require you to allocate less money towards certain nonessential expenditures in your budget, but if it means having a financial safety net to fall back on in the case of a financial emergency, then it may just be a fair trade-off.

Lay Down Payment History: If you have a score that may limit your borrowing options, find out what you need to do to build payment history in your consumer file. For instance, the 2019 Experian State of Credit findings show the average person has good credit in 2018 (the average score was 680). Keep track of how you measure up to this number.

lady smiling at her computer while looking at short term loans online.

Bottom Line: Use Short Term Online Loans Wisely

High interest rates or other costly fees may make short term online loans an expensive form of credit. If you aren’t careful, they might make your unexpected emergency even worse by throwing you into a cycle of debt.

Look for an alternative first, and if that’s not possible, only borrow as much as you can afford to repay on your online loan. Make sure you’ll have enough cash left over in your budget to handle all your other bills, too. 

Did you learn something new from this post? If you like what you read here today, you can find more financial resources on our blog.

Disclaimer: This article provides general information only and does not constitute financial, legal or other professional advice. For full details, see CreditFresh’s Terms of Use.


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