Short-term loans are a type of financing that allows borrowers to access funds quickly and are often used to deal with emergency costs like a broken boiler or urgent car repairs.
These loans can be a helpful way of dealing with unexpected expenses, but they come with a higher cost than traditional loans.
Read on and we will discuss the different fees and interest rates you may encounter with short-term loans so you can make the best decision for your finances.
What is a short-term loan?
Short-term loans are a type of financing that allows borrowers to access funds quickly, in as little as 24 hours.
These loans are typically used for emergencies or unexpected expenses and usually have a repayment period of up to 12 months, but the terms tend to differ depending on the lender.
Short-term loans typically have higher interest rates and fees than traditional loans and can sometimes require collateral.
They are typically offered by alternative lending institutions such as online lenders and cash advance providers.
Short-term loans are a great option for those in need of quick access to funds, but they come with a higher cost than traditional loans and it’s important to be aware of the repayment terms and conditions before applying to ensure your credit score does not suffer.
Short-term loans often come with a variety of fees, including application fees, origination fees, and late fees.
Application fees are charges that borrowers must pay to apply for a loan. These fees can range from a few dollars to hundreds of dollars, depending on the lender.
Origination fees are charges that borrowers must pay to cover the lender’s administrative costs of issuing the loan.
These fees are typically a percentage of the loan amount, and they can range from 1% to 8%.
Late fees are charges that borrowers must pay if they miss a loan payment.
These fees can be steep, sometimes as much as 5% of the loan amount.
Short-term loans typically have much higher interest rates than traditional loans.
This is because lenders need assurance that they will make the amount back when lending to those with bad credit scores.
The interest rate on a short-term loan can range from 10% to 400%, depending on the lender and the borrower’s creditworthiness.
The interest rate on a short-term loan is usually determined by the lender’s assessment of the borrower’s creditworthiness, as well as the loan’s length and amount.
Borrowers with good credit will typically qualify for a lower interest rate, while those with poor credit will be charged a higher rate.
Annual Percentage Rate (APR)
The Annual Percentage Rate (APR) is the total cost of a loan, including the interest rate and any additional fees.
It is expressed as a percentage of the loan amount and is typically higher for short-term loans than for traditional loans.
For example, a short-term loan with an interest rate of 20% and an origination fee of 5% would have an APR of 25%.
This means that the borrower would pay $25 in interest and fees for every $100 borrowed.
Short-term loans can provide quick access to funds, but they come with a higher cost than traditional loans.
Borrowers should be aware of the various fees and high-interest rates that may be associated with these loans.
It’s important to consider the APR and compare different options before applying for a loan.
Also, it’s important to ensure that the borrower is able to pay off the loan on time to avoid additional late fees.