When are Short Term Online Loans a Good Idea?

Published on March 27, 2020 by Daniel Azzoli

When are short term loans online a good idea?

Facing an unexpected emergency expense and have no other means to pay for it? This may be an example of a time when getting 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 45 percent of Americans who have $0 in a savings account, an unexpected expense may spiral into an emergency if it’s not looked after right away.[1]

Without savings to fall back on, getting short term loans online may 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?

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 gives you some time to repay 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.

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.

Why You Should Consider a Short Term Loan Online

Getting 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 take out online short term loans.

  • 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. Getting small cash loans online means that you may receive your funds quickly.
  • 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 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.

  • Eligibility: Unfortunately, one of the side effects of bad credit is not getting the funds you need.  For many Americans, including 58 percent of millennials, their credit score is the reason why they have been denied a personal loan or line of credit.[2]

One of the biggest perks of using online small cash loans is that your score may not be used as a the only determining factor. 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 Taking out 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. 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 finance charges.

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 build credit history with small cash loans online, you may be in for a disappointment. Some short-term loan lenders will 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 beforehand.
Frowning woman in glasses looking at small loans online

When Should You Take out Small Online Loans?

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

Some circumstances when you may consider applying for a short term loan include:                                                     

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

An online loan like a CreditFresh Line of Credit by CBW Bank may be an option if you need help with an unexpected emergency expense.

Are There Alternatives to Getting Small Cash Loans Online?

If you don’t think you’ll be able to juggle a short term online loan and your other financial obligations at the same time, there may be other options. 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 cash by selling your unwanted or unnecessary items. Hold an impromptu garage sale or go online to post a digital classified ad.

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 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.
  • Lay Down Payment History: The 2019 Experian State of Credit findings show the average person has good credit in 2018 (the average score was 680). 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.
Smiling woman sitting in front of computer looking at short term online loans

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. 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.

[1] https://www.gobankingrates.com/saving-money/savings-advice/americans-have-less-than-1000-in-savings/

[2] https://www.marketwatch.com/story/almost-half-of-millennials-say-that-their-credit-scores-are-holding-them-back-2018-07-16