When is it the right time to take a short-term loan?
- Benefits of short-term loans
- Will I be accepted for a short term loan?
- Factors to consider before getting a short term loan online
Short term loans are becoming increasingly popular in Australia both as a cash flow stop-gap for small businesses and as a personal loan to tide you over till the next pay check.
As you know, life happens. Unexpected events can occur that leave your finances short. Perhaps, your car broke down without notice. You need an emergency visit to the dentist, or you need small cash for a critical house repair job. Could be your small business needs a quick cash infusion to take advantage of a seasonal high-volume sales cycle. Alternatively, perhaps, you came upon an unexpected business opportunity, but you had little cash to take advantage.
Short term loans are the perfect option when you need a small amount of cash for a short time. They are also a flexible financial tool to see you through a cash crunch. Be aware that short term loans typically have high-interest rates. Since you are paying back the credit within a short time, lenders often charge a higher interest compared to other loan products on the market. However, in Australia, the ASIC regulates the short-term loan financial market and has capped the amount of interest a lender can charge for their services. For a loan of up to $2,000 that is repaid within 16 days to one year, a lender can only charge a 20% establishment fee and a 4% monthly fee.
That said, financial experts recommend before you take out a short-term loan to first, plan out how much you’d need and for how long. And, also to be sure, you can repay the loan on time. Keep in mind too that short-term loans are not suitable options to finance major expenses. For instance, don’t take out a short-term loan to pay for a car loan or buy new equipment for your business or downtime payment for a new home.
Use short-term loans as a temporary financial solution to tide you over till the next pay check or your account receivables are cleared. You may want to shop around, compare rates from different lenders before committing to any product. Use online short-term loan comparison site such as moneezy.com to compare rates from different lenders for the best deals.
Amazing benefits of short-term loans
Short-term loans offer unique benefits that continue to make them an excellent option for quick cash to tide you over when you are in a financial squeeze.
- Short-term loans usually have a smooth, straightforward application process.
- No lengthy, tedious paperwork to fill
- No need for a collateral or asset puts up against the loan.
- The loan amount is typically small ranging from $100 to $10 000 depending on the lender.
- No need for a strong credit score to be approved.
- Quick pay-out – you receive the loan amount directly in a verified Australian bank account once your loan request is approved.
When filling the form for a short-term loan, you may want to spend some time to read through the fine prints. Often, lenders may have hidden charges and terms tucked somewhere.
Are you suited for a short-term loan?
Before applying for a short-term loan, you may want to be sure that taking out the loan is the best option for your situation.
Here are things to consider to know if short term loan is right for you:
- When you’re short, and payday is still a couple of days away.
- An emergency occurred, and you need quick cash to resolve it.
- If your business has a high turnover, but you need money to purchase a hot product.
- When your business is seasonal. And, it would help if you had the capital to restock ahead of a busy season.
- When your business is in a cash flow fix with account receivables couple of days off to be cleared, and you need cash to keep things running smoothly.
How do you apply for a short-term loan?
As stated earlier, applying for a short-term loan is a straightforward affair. Here are the steps to follow:
- Visit the lender's website to complete the short-term loan online application.
- Proof you can pay back the loan. A pay check stub or transaction history if you are a small business owner will do.
- Fill out and sign the loan agreement form
- Provide your personal details which include a Australia-verified bank account
- Depending on the repayment terms, you may have to write a post-dated overdraft or approve the lender to chargeback on your account.
- Get credited immediately or within 24 hours after your loan application is approved.
Eligibility requirements for a short-term loan
Typically, each lender has its set of rules and criteria that borrowers must meet before they can consider their applications.
However, there are general requirements that cut across all lenders. Before applying to a loan provider, check their criteria to be sure you qualify for their loan.
- You must be at least 18 and an Australian resident.
- Must be employed and or your small business already has a transaction history.
- You must have an Australian-verified bank account
- You will be required to provide an active email and mobile number.
You can go ahead to submit your loan application once you meet these requirements. However, note that satisfying these criteria does not mean your loan application will be approved. It means your application can now be considered.
How much does it cost you to take a short-term loan?
The total cost for a short-term loan is the sum of the loan amount, the interest accruable to the loan and any loan fees applicable.
Costs for loans under $2000 are capped:
- establishment fee: 20%
- monthly account keeping fee: 4%
- interest: none
Loan example of $1,000 over 6 months repayable weekly (25 weekly repayments). $1,000 (Principal Amount) + $200 (20% Establishment Fee) + $240 (fees based on 4% per month over 25 weeks) = $1,440 total repayable in 25 weekly installments of $57.60.
Costs for loans between $2001-5000 caps:
- establishment fee: $400
- monthly account keeping fee: 4%
- interest: 48% per year
- These are secured loans, so lender might ask for security as well.
Loan example of $2,500 over 18 months repayable (73 weekly repayments). $2,500 Principal Amount + $400 (One-off Establishment Fee) + Approx. $45 Weekly Repayment at a maximum of 48% Annual Percentage Rate.
Should you take out a short-term loan?
Short term loan could come in handy when you are in a financial crunch, need a fresh infusion of cash to keep your small business open, or when you run into unexpected emergencies. However, there are situations where it is not recommended to take out a short-term loan. For example, if you just lost your job or need the loan to fund a long-term expense. In this situation, talking to an expert for the best options available to you might be the best course of action to take.
A takeaway from this article is: before applying for a short-term loan, be sure that you can comfortably pay back the loan within 30 days without having to take out another loan. Of course, you will have moments when a short-term loan is your best option to handle a financial crisis, in those periods, you may want to use comparison sites like moneezy to find the best cheapest deals available.