Personal short-term loans can be a great solution when you need to get out of a financial bind. However, if you’re not careful and don’t have an achievable repayment plan, taking out a short-term loan can actually cause you more harm than help.
What is a Short-term Loan?
Short-term loans can be installment loans or single payment loans that must be paid back in less than a year. For flexibility and saving money, installment loans are greatly preferable to single payment loans.
Often used as a flexible tool for financing short-term financial needs like managing cash flow, covering costly unexpected accidents, and capitalizing on unanticipated business opportunities, short-term loan amounts range from a few hundred dollars and up. To pay the least amount in interest, it’s important to create a repayment plan that allows you to pay it off as quickly as possible.
Tips to Remember When Financing Your short-term Loan
In addition to saving you money on interest, paying off your loan early provides you with more financial freedom. By keeping these quick tips in mind, you can pay off your short-term loan with gusto.
- Use a change-saving app to help you gather and stash away change from the various purchases you make. Apps like Acorns, Digit, and Chime can be downloaded onto your smartphone and used to help you build up capital that can be put toward your loan.
- If possible, make bi-monthly payments. By making payments every two weeks, you can pay off your loan without even realizing how much time has gone by.
- Try to round your payments up to the nearest $50 or $100.
- Find a way to make an extra, substantially large payment. Whenever you sell items you no longer use and find yourself with additional unexpected cash, put it toward your loan.
- Take a close look at your weekly and monthly budget and look to find areas you can cut back on or go without. Changing some of your spending and lifestyle habits can have a remarkable effect on your ability to save up and pay off short-term loans.
While paying off a short-term loan in less time is typically recommended for anyone who borrows money from a lender, it’s even more advisable if you have high monthly payments that garner high interest rates. It’s critical to note, however, that many lenders might implement prepayment penalty or exit fees for borrowers who prematurely pay off their loan. Because of this, it’s critical that you talk with your lender and carefully choose your loan terms.
Talk With Your Lender
Lenders will sometimes penalize you for paying off your loan early, as a means of making back the money you would have paid in interest throughout your entire term. These fees will be noted in your loan contract, so if you plan to pay off your loan in under the allotted time, consider choosing a lender that doesn’t charge for prepayment. Keep in mind too, that even if your lender does have prepayment or exit fees, it still might be worth it to pay the fee rather than pay the interest.
All in all, by making smart short-term financing decisions and taking the steps needed to put money toward repayment, you can set yourself up for the success of financial freedom.