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Personal Loans
Short Term Personal Loan

The main thing that borrowers should remember about personal loans is that such financial arrangements are short term loans.

In a short term personal loan, the borrower has a very limited period in which to pay the loan off. Most of the personal loans offered by storefront and chain cash lenders must be paid off in two weeks. Some of these loans are designed to be paid off on the borrower’s next payday, hence the term payday loan.

This means that a borrower needs to be able to come up with the cash to pay off the loan very quickly. Most lenders will extend short term cash loans but they will usually charge a fee for such extensions. A common arrangement is for a borrower to charge a borrower $50 to $100 to renew a short term personal loan.

The High Cost of a Short Term Personal Loan

A short term personal loan can become very expensive if a borrower has to renew it. Renewing a personal loan means that the lender gives the borrower more time to pay but charges for the privilege.

Most lenders will charge some sort of extension fee which can add $50 to $100 to the cost of the cash loan. To make matters worse the lender will keep charging interest which can be 25% or higher. The amount of the interest is added to the final loan repayment amount.

This means that a lender may charge $100 in interest on a $400 payday loan and $200 if it is renewed. The cost of the cash loan can quickly exceed the amount borrowed. A borrower can easily end up owing a short term lender hundreds of dollars.

Limiting the Cost of Short Term Personal Loans

There are some ways that a borrower can limit the cost of a short term personal loan. The first is to get an open ended or revolving loan or line of credit. In an open ended loan the lender doesn’t charge a fee to renew the loan. In a line of credit the borrower only has to pay back the funds they actually use. Such arrangements can reduce the cost of a short term loan by hundreds of dollars.

Another way to reduce the cost of a short term personal loan is to see if the borrower can make partial payment. A lender may wave fees or interest if the borrower is able to pay off a portion of the loan such as 25% of the amount borrowed.

Utilizing online lenders which are often more flexible can help a borrower get better terms and a lower interest rate on a short term personal loan. Online lenders will be more likely to make lines of credit and revolving loans available.

The best way to avoid added costs to a short term personal loan is to pay it off quickly. The faster the short term loan is paid off the quicker the borrower will get out of debt.

Terms of Short Term Personal Loans

The best way to save money on a short term personal loan is to read the terms of the loan before taking it out. The terms of the loan will tell you how much you can borrow, how long you have to pay it off and what fees and interest you will pay.

Taking a close look at the terms can help you avoid added fees and extra charges that can cost a borrower a fortune. Don’t be afraid to object to terms or ask for a better deal. Lenders want your business and they might be willing to change terms especially for a good customer.

Another good tip is to shop around and the read the terms of several different loans. Shopping around can get a borrower the short term personal loan with the best terms and the lowest cost.