This post is from Peter Davis. Enjoy!
Many people find themselves in a short term financial fix every now and again and need to borrow some money to meet an unexpected bill or bridge a gap until they next get paid.
Taking out a short term loan can be a very useful solution to a temporary financial shortfall problem and provided you pay it back on time, it is something that works well for a good number of people.
As with any financial product, like an overdraft or a secured loan, you need to understand the terms you are agreeing to and comprehend what the particular financial service this type of finance is offering, so it is certainly important to know what you are signing up for before you borrow.
Taking out a short term loan
If you require a relatively small amount of money for a specific purpose and know exactly how long you need it for, then taking out short term finance could be a viable solution provided you understand that there will be interest to pay on the money you are borrowing and financial penalties if you fail to repay the loan on time.
Many lenders who offer these short term finance will make it perfectly clear exactly how much it is going to cost you in interest and charges to borrow the amount you have requested and the quote will be based on the length of time you require the money for as well as the amount needed.
The transaction can therefore be relatively straightforward and transparent as long as you stick to the original terms and pay back the loan for example in 23 days, if 23 days is the length of time you have worked out you need the money for before you will have funds to repay the borrowing.
The average length of a short term loan is 30 days, but it is best not to borrow the money for any longer than you have to as it will potentially cost you more in interest charges.
Once you have a repayment date fixed and the loan is in place, you need to ensure that you have the funds available to pay back the amount that you have borrowed plus the interest on the due date. The most common method that lenders use to collect the money at the end of the loan period is through your bank debit card.
When you take out the loan you will generally be asked to sign a CPA (continuous payment authority) agreement, which gives the lender permission to take the money they are owed from your bank account on the agreed date.
You should be aware that if there is insufficient money in your bank account to repay the loan on the specified date, the CPA you signed gives the lender the right to keep asking your bank for all or even part of the money without seeking further permission from you. This action can also result in charges being added for late payment which they may also attempt to collect at the same time.
It should always be remembered that a short term funding is exactly that, a time limited loan. It is not a product that is designed to be extended beyond the original loan period, although you can ask to extend the loan, but this will cost you additional interest and there may be extra fees to pay as well.
As long as you know what you are signing up for and have the means to repay the borrowing on time, this type of loan can be very useful in helping you to bridge a temporary gap in your finances.
Peter Davis’s career in finance has earned him years of experience. When not crunching numbers, he enjoys blogging about making smart money decisions.