Short Term Loans
Throughout New Zealand, short-term loans are proving to be very popular, amongst other forms of credit. They include payday loans and quick cash loans, usable for a breadth of emergency cash needs, from groceries to vacation getaways.
There are times you may find yourself in desperate need of cash to cover an emergency situation. One of the quickest and most widely available credit options open to you is a short term loan.
For those living from payday to payday, any unexpected expenditure can cause panic attacks. In a perfect world, we would all have emergency cash reserves to draw from in need of quick cash infusions. But as this is not a perfect world, a short term loan is one of the ways to acquire any emergency funding you may require, fast and easy.
The scenarios in which a short term loan would be beneficial are plenty. Big-item purchases, emergency medical procedures or big-ticket car related costs all can occur at a moment’s notice. Think of short term loans as ‘bridge financing’, a way to keep financially afloat until the next payday comes around.
Easy and quick money
As soon as you receive your income, you can pay back what you owe. At times, this is not always possible. Short term loans carry some risks but should not be the answer every time you require cash or as a financially prudent way to carry out your affairs.
Most credit products have the ability, in less that prudent hands, to wreck you financially. Familiarize yourself with the details of short term loans ahead of applying for one, so as to make it work for you and not against you, financially.
Put another way, short term loans are a very expensive form of personal loans that are available very quickly.
Short Term Loans: An Explainer
Also known as Micro Loans, short term loans are typically offered for temporary cash reasons to individuals. They are normally used for shorter period of time use.
Financial gurus generally submit that not only are sort term loans widely available, but they are targeted particularly to borrowers with the highest likelihood of repaying it back. Packaged in a myriad of ways, short term loans are designed to fit a consumer’s particular requirements.
At a go, only a handful hundred dollars can be credited to you by the lender, with repayment expected a few weeks later. Certain lenders require the borrower to write a post-dated check that will be used to pay off the debt once your income is sufficient enough.
Should you default on repayment of the loan, the repayment end date can be pushed forward, thereby postponing the loan’s repayment term limit. This will mean, however, that the fees attached to your loan total amount will increase by a similar amount of time as the deferment, making the loan more expensive.
A lack of a credit check is marketed as a short-term loan’s biggest benefit
As they say, easy come, easy go. In this case, its ease of acquisition comes with a significant amount of expense.
In comparison to other loan types available in New Zealand, short-term loans carry with them hefty APRs (Annual Percentage Rates), with some cases recording up to a few hundred percent! As an illustration, a NZ$100 loan can come with up to NZ$20 in fees and charges within the first 2 weeks! This works out to an APR of 426% for each such loan disbursed by that particular lender.
Examples abound of borrowers APRs of over 1000% on their short term loans!
Therefore the biggest and most obvious demerit of short term loans is the high borrowing cost.
Ultimately, your finances may become worse rather than improve, especially if payments begin to lag. These loan types are not favorable to those without steady income streams, as they can dampen spending power even further. It would be understandable to make use of short term loans if you need cash desperately, in a pinch. However, taking several of these loans out does not sound financial strategy make, due to their quite high interest rate.
Because of this, short term loans are considered by many in the industry as best for financial emergencies, and not for any lasting, longer term use.
If your income is erratic, you have a high likelihood of your repayment checks bouncing. This increases the chances of your credit score being reduced but additional bank overdraft charges as well. As time go by, this financially volatile environment may dissuade lenders from accepting any loan requests in the future. In some cases, lenders are known to bring legal proceedings against borrowers due to loan defaults.
When the repayment schedule is postponed, the fees and interest increase in tandem.
Recently, an increasing number of traditional financial companies have taken a larger interest in the market for short term loans, because of the high rate of returns smaller, niche financial players are making. While traditional bank credit facilities have been preferred for the assurednes and lower borrowing costs, their newly created short term loan products have come on to the scene and been generally well received by the borrowing public. They don’t tend to broadly differ much from those offered by niche lenders, though some details may differ.
On the other hand, bank-sourced short term loan products can be more expensive than their small lender counterparts, in certain circumstances. One reason behind this may be they may have access to your account information and can tailor the product in a way they know you can manage. Not only that, but they can access your repayment funds directly from your account.
Traditional banking institutions may require security to extend a short term loan to you
A short term loan with this clause opens up any borrower to losing even more than one without the clause, making it even riskier.
Short-term loans risks
Risks and loans have always been a package deal, the borrower accepting of them in order to access funds. While this may be true, it is especially true when accepting a bank loan.
Alternatives are available to taking a short term loan. The first, and most obvious, is to have savings in some form, such as an emergency cash fund. This may be difficult to accumulate, especially for those on the periphery of society.
Additionally, your credit score and history will be much of the basis on which lenders will oan you money, therefore it needs to be as good as can be.
Another alternative to a short term loan is a credit card, although it presents its own unique set of challenges as well.
Another loan product worth considering is an unsecured cash loan. Available from credit unions or banks, there are easy and quick to access.
Financial experts suggest repayment plan renegotiations as a way of freeing up tied up income from loan repayments.
Advantages to Short Term Loans
As long as payments are made in a timely manner, many secondary costs can be saved thereby better managing spending.
For those living paycheck to paycheck, short term loans can offer financial flexibility. Instant access is also a feature of these loans, as the loan is deposited directly into your account. This affords you a wide range of choice as to how to deploy the funds.
Another advantage of their flexibility is the mode of application. Night or day, at any time and all year round; that is the availability time-span of short term loans. Being so convenient to acquire online has reduced the need to visit a loan officer’s office at a pre-arranged time.
Similarly, credit history is built up with every short term loan you take out and successfully repay. This history is used when considering any traditional, longer term loans you may want to apply for in the future. Not only is the loan cost to you judged by the details of your history, but also the term limits and loan amounts. While it is unwise to apply for too many short term loans, it does give a sense of peace of mind to know that that the option is open to you, should you require it.
Short term loan verdict: should you apply for one?
For those with healthy credit scores and have the requisite income to repay back short term loans without too much hassle, keeping in mind their high loan costs, then when the need arises, you would be great candidate for applying for one. Although, if the above describes you, there are much cheaper and less financially damaging options for you to choose from.
These types of loans should be only considered if the cash infusion you need is immediate and necessary. As always with any financial instrument, shop widely for the best terms and interest rates, comb through the loan contract thoroughly and pay on time. This is the only way best results will be achieved when considering a short term loan.