25% of Canadians are unprepared to handle an unexpected $500 expense or emergency.
Whether you have a tight budget or are faced with an unexpected emergency, the reality is that sometimes people are faced with hard financial decisions.
When faced with a financial problem or goal, often a short-term personal loan offers benefits. Have you wondered how a personal loan works and whether it makes sense for you?
Read on to learn more about short-term loans and their benefits to consumers.
What Is a Personal Loan?
Personal loans are often also called short-term loans. These are loans made to people for a shorter period, often as unsecured loans.
The loan amount a borrower qualifies for may be based on their credit score and income. Lenders want to know if the borrower will have the ability to pay it back.
Terms of the loan are typically short-term, months to a few years. While these loans are unsecured with collateral, it often means the borrower will pay more for the loan.
Often interest rates are slightly higher than secured loans and can be higher for those with lower credit scores.
How a Personal Loan Works
If you’re ready to borrow money and hope to get a personal loan, it’s essential to understand how this type of loan works.
Most personal loans are unsecured loans, meaning you don’t have to have collateral to get the loan. This makes the application process pretty simple.
You go to a lender for a personal loan, usually an online lender, and complete their application. Typically, the application will want to know your contact information, employer, and income.
The lender will review your credit score and report and decide about lending.
If they plan to lend to you, you’ll be notified with information, including:
- Amount approved for the loan
- Interest rate
- Repayment schedule
- Other fees associated with the loan
As a borrower, you must pay close attention to the terms of the loan and make the necessary payments to pay the money back.
Let’s take a closer look at the benefits associated with a personal loan.
1. Rapid Access to Funds
Some of the best personal loans provide quick access to the funds once approved.
In most cases, you complete the application process, and within a few days, you’re notified about the results of your application.
If you’re approved, you need to sign the loan paperwork saying you agree to the loan terms, and the money is often deposited directly into your bank account within a day or two.
2. No Collateral Needed
When you buy a house or a car, the amount of money you’re borrowing is much greater. For this reason, the bank makes it a secured loan.
If you default on the loan and don’t pay, the lender can take the house or the car back from you.
As mentioned, a personal loan rarely requires collateral. As an unsecured loan, this likely means the amounts are lower than if you’re buying a house or a car.
The amount you’re approved for will be connected to your credit score.
3. Help Handle Financial Emergencies
Short-term loans are a solid option when you face a financial emergency. Because they’re relatively simple to get and you can get fast approval, they can help in an emergency.
Medical emergencies can quickly add up bills. If you’re in a car accident, you need your car to function and make money.
Even the most financially secure adults face emergencies and times when money is tight. A personal loan with a short payback schedule can help you get through the emergency.
4. Balance Inconsistent Income Flow
Another benefit of a short-term loan is that it can help you balance your budget when you have inconsistent seasonal cash flow. Some workers and businesses have busy and slow seasons.
During the slow season, they can face drops in income. The personal loan can help to offset the times when income is lower.
You can also set up your loan repayment terms to accommodate your income flow and plan to repay the loan before your next seasonal dip.
5. Help Improve Your Credit
If you have struggled with credit in the past, a personal loan is a good way to show you’ll be a reliable lender.
Even if your credit score is less than perfect, you can get a personal loan. Then make all your payments on time. Over time, this will help show you’re a reliable and trustworthy borrower.
It can help you improve your credit score. With an improved credit score, you get better lending terms on future loans.
6. Approval for a Wide Range of Credit Scores
Speaking of credit scores, you can often secure a personal loan even if you don’t have perfect credit.
Lenders are often willing to loan to borrowers who don’t have perfect credit. The amount you’re approved for in the loan may be lower. You may have to pay higher interest rates if you don’t have perfect credit.
Yet, if you’re a careful borrower and repay the loan, you can get better terms the next time you seek a personal loan.
Use a Short-Term Personal Loan for Your Financial Needs
A short-term personal loan provides a host of possible benefits to borrowers. A personal loan can help with a financial emergency and help to boost your credit score at the same time.
If you’re in the market for a personal loan or want to learn more about how to get one, we can help. Contact us today to learn more about the loans we offer.