Taking out a loan is a serious decision that should be preceded by a sufficient amount of inquiry, research and comparison in order to make the best possible choice before signing on the dotted line.
When it comes to a short-term loan, however, the amount of time a consumer may have available for that process can be limited. A short-term loan, of course, is not a mortgage. If you have decided to start looking to buy a home, you’ve already taken a hard look at how much cash you have for a down payment and how much of a mortgage you can afford. Moreover, and the odds are that friends, relatives or co-workers have already shared their own experiences with you regarding their own mortgage lenders. In contrast, a short-term loan, in comparison, is more often than not a last-minute decision. You need a bit of extra cash to pay a larger-than-expected bill that’s due, avoid overdraft or a bounced check, or even just to buy a fitting present to bring to that wedding you’ve just been invited to.
What are the key factors to look for in a short-term loan provider that can be quickly identified so as to enable you to make the right decision when time is of the essence?
First, there’s the time element itself. How long will it take to apply? How long will it take the loan provider to review your application? How long will it take to get a response? And how long will it take to repay the loan?
The internet has revolutionized the amount of time it takes to fill out a short-term loan application. Online forms are similar and require information that you either know by heart or have at your fingertips. The first real difference between providers will be the amount of time it takes to actually confirm receipt of the application and approve it. The loan provider should confirm receipt with a reply email within a couple of minutes. And you should expect an answer regarding your loan request within one business day, perhaps two at the most if it’s the weekend or a holiday. If not, then they lack state-of-the-art verification processes and technology, which means that they haven’t invested in customer-service infrastructure. Stay away. You’ll want to be able to rely on fast, professional service.
You know what your personal finances are like, and you have a good idea how much you can siphon off for loan payments over the short term. If the loan provider tries to talk you into borrowing more than you really need or can afford, that’s a red light. Look for a loan provider who tries to go the extra mile to meet your own needs.
Next, take a good look at the small print. Suppose it turns out that you underestimated your ability to pay the loan off according to the repayment schedule you agreed to. Maybe you’ll unexpectedly get a better paying job, or get a bonus at work or even win the lottery and decide to pay the loan off ASAP in order to save on the interest that you’d otherwise have to fork over. Is there a “pre-payment” penalty written into the contract? If there is, that’s another red light. You don’t want to agree to penalize yourself in advance if you can avoid it, and in this case you certainly can.
Finally, and perhaps most importantly, there’s the interest rate itself. In general, interest rates for short-term loans are lower than many of the alternatives, and competition leaves very little room for significant differences between lenders.
But now that you’ve established a relationship with a short-term lender, you’ll want to keep it, just in case you’ll require another such loan down the line. If the loan provider already knows you and trusts you, that should go a long way to reestablish your credit. Since your loan payments are likely to be reported to the nation’s three credit bureaus, you’ll be rebuilding your credit history, which is crucial if you’re ever to, say, take out a mortgage or even apply for a credit card.
That being the case, it may be worth your while to take out a second and third short-term down the line to keep improving your credit history and become entitled to a higher credit score. The trust you established with your loan provider ought to count for something. So the final question you have to ask is does the provider reward your loyalty by making it easier to take out subsequent loans? If he does, he will provide returning customers like you with increasingly higher loans at decreasingly lower interest rates. This is a key element of your own strategy for securing your financial wellness.