Short personal loan, or personal loan in general is a solid and good option if you’re looking for consolidating a debt or making a major purchase since it can be used for anything especially with its fixed, no-surprises interest policy.
But as with most things in life, taking out a short personal loan do have some risk attached to them that if you’re not paying attention to, can lead to some debt spiral that’s impossible to get out of. Here’s what they are and how you can mitigate them.
Taking a short personal loan can ruin your credit if you fail to pay it
Personal loans are usually unsecured loans, meaning that they require no collaterals from you as the borrower in the case of you going into default. Instead, the loan is backed by the promise that you as a borrower can repay in time. That being said, some personal loans can come with collateral as way to secure it, although this is less common.
But even with secured personal loan, if you don’t consistently make your monthly payments that’s scheduled by your lenders, your credit history or score could take a hit which of course you want to avoid.
For example, let’s say you fail to repay the payment for a month or so. Your credit score can be deducted by a whopping 100, and that’s enough to suddenly turn what was a good credit score to fair or even bad credit score. Credit history is one of the more important factors that lenders have on whether or not they’ll give you better rate, take care of them, alright?
What happens if you’re late for your payment?
Scarily enough, it doesn’t take a very long time for missed payment to show up on your credit report and for lenders to take action immediately.
That being said, thankfully most lenders are willing to work with you or other borrowers that are struggling, so it’s important to call your lender as soon as possible if you miss even a single payment.
The High APR Issue that Short Personal Loan Comes With
It goes without saying that it’s important for borrowers such as yourself to look into the loan you’re getting before actually making the decision. And one of the things that you should really look into about that loan is its APR. Most personal loans come with nasty APR, meaning that you’ll have to pay more than what you borrowed earlier.
This wasn’t really an issue most of the time with other types of loans because of their relatively low APRs, but since you’re going to be getting a short personal loan, this can become very worrisome, even more so if you have bad credit.
Taking unnecessary debt
When you consider taking a short personal loan, you also consider taking an unnecessary debt. Don’t get us wrong, not all debts are bad debts, there are times where getting a debt can be considered as a smart business move, but if you don’t have to take a debt, then you definitely shouldn’t.
For example, it doesn’t make sense for you to take a debt such as short personal loan where you’re already struggling to pay your monthly bills or if you want to pay for unnecessary expenses such as vacation or entertainments.
Doing so will only worsen your financial situation in the long term, because taking out a loan when you don’t need one makes you dependent on it, and sooner or later, you’ll be trapped in a debt cycle that you can’t escape.
Minimizing the risks above
In order to make short personal loan works for you financially, it’s important to know how you can mitigate the risks we’ve listed above even before meeting with your short personal loan lender.
Give a closer look at your finance before coming to a decision
Go check your monthly budget and see if there really is a room for a short personal loan for you to make. If you’re already struggling with keeping up the bills’ costs, consider other alternatives instead of getting a short personal loan. Perhaps something such as personal line-of-credit or peer-to-peer loan would be better suited for you.
Research your lender thoroughly
We’ve sort of mentioned this point already above, but it’s certainly one that’s worth repeating. Not all lenders work or operate the same way, you may find a loan from online lender, bank, credit union, or even your local community peer-to-peer lending service.
Read: short loans online
Some specializes in things that others don’t. And since there are so many of them, do research on each and every single one of them to find the best one for you. If you’re feeling lost, there are hundreds of personal loan reviews available on the internet that you can use a stepping stone.
Just make sure that the site you’re reading from is credible and trustworthy.
Look for the lowest APR
The potential of getting trapped into a debt-cycle is real thing when it comes on taking out a short personal loan. And with how much lenders available right now, you will have myriads of lenders with their different APRs. Some offer less, some offer more. Always settle for the one with the lowest APRs.
But most time that’s easier said than done because if you have bad credit, then most of your loan offers will involve higher APRs than what we consider normal. If you’re in this situation, look for the lender with lowest APR that can help your credit score. It might take a little while, but it’s better to be patience than to be in debt.
And to close off this article, short personal loans are a type of financing tool, as such it can be used wisely or poorly. Take the time to fully research everything there is to know about the world you’re about to step into.
Having the knowledge to make informed decisions based on your financial needs will help you find the short personal loan that’s truly made for you.
That’s all from us for now, thank you for reading our article and we hope to see you next time.