There are times when you might need extra financial help. You could be facing an unexpected expense. Or you need money to tide you over between pay periods. Whatever the circumstances, a personal loan can help.
But before visiting an in-person or online lender, it's essential to consider certain factors, like how much money you need, what you plan to use it for, and what stipulations the loan includes.
You should also know the difference between short-term loans and long-term loans. This information helps ensure you find the right loan for your particular needs.
What Are Short-Term Loans?
A short-term loan's term (or payback period) is generally one year or less. Some options-like a payday loan-have shorter payback periods. A payday loan lets you borrow the full amount of your paycheck, which you must repay in full when you receive your next payment. The payback period could be two weeks or one month.
Short-Term Loan Requirements
Short-term lenders want assurances that you can pay the loan back. As a result, loan requirements include your employment history. Lenders also want to know about your income source before approving the loan. Be sure to gather pay stubs or previous income tax records.
Some short-term loans might also need a credit history and credit score, though this is rare. Still, it's a good idea to prepare for such a request. You can learn more about your credit history by requesting your credit reports. By law, you're entitled to a free credit report from each credit reporting agency every 12 months.
Pros of Short-Term Loans
Short-term loan benefits include a brief application process and quick approval. You generally only need to supply your name, address, and income information.
Upon approval of your application, you could receive your cash in less than a week or even on the same day. For instance, if you apply for a short-term installment loan from Jora Credit by 10:30 central time, you could receive your funds on the same day.
Another benefit of a short-term loan is a shorter payback length. This means you don't have to worry about a long repayment period-and you're out of debt faster.
Cons of Short-Term Loans
While short-term loans provide quicker financing, they can also mean higher interest rates. The lender usually approves your application based on income rather than credit score. As a result, the lender takes on a higher risk with a short-term loan, resulting in a higher interest rate.
Additionally, you must avoid missing any payments. Late or missing payments could mean hefty fees and penalties in addition to the interest rate. But some lenders (like Jora Credit) won't charge those extra fees. Make sure you do your research to check on this.
Finally, short-term loans tend to have lower borrowing limits. These can vary depending on your state and the lender type. Generally, the maximum borrowing amount on short-term loans is $5,000.
Short-Term Loan Use Cases
Short-term loans can help with situations that require immediate cash for emergencies. These situations might include an unexpected car or home repair. A short-term loan is also helpful if you need money to tide you over between paychecks.
If you need quick money and can promptly repay it, a short-term loan might be perfect for your needs.
What Are Long-Term Loans?
A long-term loan is financing with a longer repayment term of one year or more. Examples of this financing type include student loans, home mortgages, and car loans. You can access long-term loans through banks, credit unions, and online lenders.
The payoff period with a long-term loan can range between one and 30 years.
Long-Term Loan Requirements
Loan requirements might include a higher credit score. Lenders may need to determine your history of on-time payments. This might mean a hard pull on your credit to determine your previous treatment of long-term debt. As mentioned above, it's a good idea to prepare for this by having your credit reports on hand.
Lenders will also need your proof of employment and income sources. Be sure to have all these documents ready before you apply.
Pros of Long-Term Loans
With a good credit score, you could receive a lower interest rate on your long-term loan-which means lower monthly payments. Another benefit is that long-term loans come with higher borrowing limits.
Also, if you have extra cash on hand, it's possible to pay off the loan before the term. Be sure there is no prepayment penalty involved. As a note, Jora Credit doesn't asses a prepayment penalty if you want to pay this loan off before it's due.
Cons of Long-Term Loans
With a long-term loan, you're committed-for the long term. You'll need to keep repaying that loan for many months or years. It could be a while before you're debt-free.
And yes, your monthly payments might be lower with long-term financing. But because it takes more time to pay the loan off, you'll end up paying more in interest.
Long-Term Loan Use Cases
Long-term loans are best for large payments for goods or services like education, home purchases, major remodels, or medical bills. If you need more than a few thousand dollars, consider applying for a long-term loan.
Prepare Before You Apply
No matter the loan type, you must take specific initial steps. Be sure to understand what you need the money for. Then consider your financial situation to help determine whether a short-term or long-term loan will suit your needs.
It's also essential to research lenders to determine their trustworthiness, reliability, and honesty. Also, examine those lenders' term length and interest rates.
Then consider Jora Credit for a short-term, quick-cash loan or a longer-term loan. Jora Credit offers transparency and all costs and information upfront. For more information or to apply, visit us online.