3 Mistakes to Avoid When Taking Out a Short-Term Loan

Short-term loans are excellent options for borrowers needing a fast lump sum of cash. They often have quick applications, are fast to fund, and sometimes don't require credit checks.

But with speed and convenience comes errors to watch out for. Make sure not to commit the following three mistakes when taking out short-term loans.

1. Taking Out the First Loan You Find

Hunting for an online loan nowadays is faster and easier than before, thanks to technological advancement. That said, you might be tempted to take the first loan you find — whether it's because you need money or you just hate loan shopping.

However, you might lose out on a higher principal amount, lower interest rate, or other more favorable terms if you jump at your first loan opportunity.

It's ok to take your time when shopping for short-term loans. Get prequalified for offers if possible. Weigh interest rates, fees, and terms between lenders. You could save a substantial amount of money by being patient in your loan shopping.

2. Missing/Making Late Payments

Having to pay your bills on time seems like obvious advice, but the drawbacks to being late on payments make this worth reiterating.

Most lenders tack a late fee on if you fail to pay your bill on time. In many cases, the lender will also report the late payment to the credit bureaus, harming your credit score.

People fail to pay on time for several reasons. If you're forgetful, you have a few options. Your lender may let you set up text and email reminders for payment. If not, you can set a regular calendar notification or alarm on your phone or computer.

Alternatively, your lender may offer autopay (and might even give you a slight discount for opting in). With autopay, you never have to worry about late payment. Just make sure the account you use to pay your loan has enough to cover the payment each month.

Now, say you fail to pay on time due to financial insecurity instead of simple forgetfulness. In this case, you'll need to take a hard look at your spending and income, then look at ways to cut the former while raising the latter.

3. Skipping the Fine Print

It's easy to skip the fine print when you have a loan offer awaiting your acceptance. However, you should read these terms and conditions because you could save yourself money and headache in the future.

An essential factor to look for when scanning the fine print is fees. Make sure you understand all the fees associated with your loan so you don't rack them up.

For example, one fee lenders might get you on is a prepayment penalty. The lender charges you a fee for early payment to recoup some of the lost interest they would have earned.

Other things to look for in loan fine print include:

  • Annual Percentage Rate (APR): The annual rate of interest you will pay for the loan.
  • Collateral: Property you put down to obtain the loan. Lenders can seize collateral if you can't pay your debt.
  • Grace periods: Any time period where the lender doesn't require you to make payments. You won't incur penalties for not paying during a grace period. Grace periods are common on federal student loans.

Avoid these three mistakes, and you'll be much better off hunting for a short-term loan.

Notice: Information provided in this article is for informational purposes only. Consult your financial advisor about your financial circumstances.

Source: iQuanti, Inc.

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Categories: Personal and Family Finances

Tags: Financial Services, Financial Solutions, Loans, Personal Finance