Pluses And Minuses Of Short Term Loans


Many times, small businesses and individuals may find themselves in a tight financial situation that may require them to take a bridge loan or a short term loan to meet their finances until resources are available. Short term loans can be a wonderful option in situations when your money position is tight and credit is not available to handle some unforeseen financial emergency such as the repair of your car or repayment of your credit card amount, etc. Nevertheless, the key lies in handling short term loans responsibly.

There are many advantages of taking short term loans, but there are disadvantages too that can be quite significant. So before taking a short-term loan, it is important to understand both the pros and cons.


Advantages of short term loans

The main benefits of short term loans are:

  • Quick disbursement of funds
  • Widespread availability of loans geographically
  • Minimal background and collateral checks


Most of the conventional methods of loans can take several weeks to process and are approved only once a complete evaluation and verification is done.

In the case of pawn shop, payday or title loans, you must produce proof of employment, a valid checking account, title of your car or personal possessions and this can help you get a loan immediately, either as cash given to you right away or deposited into your bank account the same day when you apply for the loan. This can happen only in the case of credit card cash or if you are borrowing money from a family member or a friend.

Short term loans are typically targeted towards people who have a questionable or bad credit history and may never be able to get a loan from a credit union or a bank. 


Disadvantages of short term loans

The easy accessibility and the minimal requirements to take a short term loan can have many disadvantages and consequences.

  • Since people usually take short term loans as a last resort, when other sources of loans don’t really work out, these types of loans have extremely rigid terms, charge excessive fees and have very high-interest rates. So, if you want money immediately on short notice, then it will definitely have strings attached.
  • Short term loans are available for any period of time; however, most of them last for around 2 weeks. The interest rates for short term secured loans can be quite high and on an annual calculation, the percentage can go up to thousands.
  • In the case that you default on your loan repayment, you can face the risk of losing your collateral such as your car or any of your personal possessions.
  • Since taking a short term loan is very easy and convenient, you could get hooked on the habit of borrowing money via short-term loans, whenever you are in need of money.
  • Short term loans are definitely very convenient but in the bargain, you may end up wasting money if you can get a cheaper loan or spending more than what you can afford.


Selecting your loan wisely
You should consider getting a loan by any other means than resorting to short-term funds, if possible. There are many more and better ways in which you can get cash such as asking for a cash advance from your employer, borrowing from a friend or a relative, taking up a part-time second job, or making money by having garage sales.

However, if you have exhausted all other means of getting cash for some short term requirement and you have no choice but to take a short-term loan, then you must do the following:


  • Ask plenty of questions
  • Clarify all contract terms that you do not understand
  • Get the copies of all loan documents


Short term loans get the bad rap because usually, people are not able to repay the loans on the due date for the loan amount. This may lead to you to taking additional short-term loans to repay your loan, which makes matters worse.

Protect both your finances, as well as yourself, by taking a short term loan only if it absolutely necessary and also ensure that you pay back your loan amount in full before the due date. Also, make sure that you understand the pros and cons of taking a short term loan before doing so.


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