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Understanding Short-Term Loans

What Is a Short-Term Loan?

Short-term personal loans are a type of unsecured installment loan. Unlike traditional personal loans that are repaid over several years, short-term loans are typically repaid within a year or two. These loans provide the entire loan amount upfront, which is then repaid in periodic installments.

A short-term loan is defined by its short repayment period, which can range from a few weeks to a couple of years. Examples include payday loans, auto title loans, pawnshop loans, and high-cost installment loans. These loans often come with high interest rates or fees, frequent payments, and low or no credit score requirements.

Pros and Cons of Short-Term Loans

Pros

• Easy to qualify for: Lenders may review your creditworthiness and consider your income and history with similar types of debt, but they often do not require a good credit score.
• Fast funding: You might receive the funds within one or two business days, or even the same day if you visit a storefront lender.
• High loan limits: Some short-term loans, like auto title loans, allow you to borrow several thousand dollars.

Cons

• High rates and fees: Short-term loans often come with higher interest rates and loan fees.
• Short terms make repayments difficult: Frequent payments can make it challenging to repay the loan and manage other household bills. Some borrowers may end up rolling over the loan or taking out a new loan to pay off the current one.
• More fees than other types of loans: You might encounter fees that are uncommon with other loans, such as processing fees or rollover fees.

Alternatives to Short-Term Loans

Short-term loans can be costly and may not always be the best option. Consider these alternatives before opting for a short-term loan:

• Call 211: The free 211 hotline can help you find programs and organizations that might lower your bills or offer financial assistance.
• Hardship and payment protection plans: Your current lenders and credit card issuers may offer programs that temporarily lower or pause your monthly payments.
• Credit cards: While credit cards often have high interest rates, they can still be more affordable than some short-term loans. Credit card cash advances may have higher rates and fees but could be a better option than payday loans.
• Paycheck advance programs: Ask your employer or look into apps that allow you to get an advance on your paycheck without high fees.
• Payday alternative loans: Some credit unions offer payday alternative loans (PALs) with more favorable terms.
• Friends and family: Consider asking a friend or family member for a small loan or help with bills. Be mindful of the personal implications if you cannot repay them.
• Get a cosigner: A creditworthy cosigner can help you qualify for better loan offers. However, missed payments can affect their credit as well.

Get Matched With Loan Offers

It’s always wise to compare offers before taking out a loan. Check your credit report and score to understand which types of loans you might qualify for. O1ne Mortgage can help you find the best loan offers based on your credit profile. Call us at 213-732-3074 for any mortgage service needs. Our team is ready to assist you in finding the right loan solution.

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