At this point, it can be said that virtually all of us have been financially impacted by COVID-19 to one degree or another. Between various stay-at-home orders throughout the nation, as well as the unemployment numbers that have skyrocketed upwards, due to those orders (combined with other factors), we are looking at an almost dizzying number of Americans who are currently strapped for income.
Naturally, people are seeking government support in any form or fashion. However, many are also exploring other possibilities. The notion of a short-term loan, not surprisingly, has been garnering a significant amount of interest as of late.
As such, we ask ourselves: Is it a good idea to look at short-term loans during the Coronavirus Pandemic? The answer comes down to weighing a handful of crucial factors.
What Exactly Is A Short-Term Loan?
First thing’s first: Let’s take a look at a straightforward definition of the short-term loan. We can then weigh the pros and cons of the short-term loan.
From there, it should be easier for you to decide if this is a good idea for your unique situation. Keep in mind that the demand for short-term loans also comes to us from no less than five federal agencies, including the National Credit Union Administration and the Federal Reserve System. The statement offered not only encouragement to financial institutions and lenders in a position to offer short-term loans, but also a basic framework of how such entities could offer those loans responsibly.
Simply put, a short-term loan is a loan you are expected to pay back over a very short amount of time. The window can be as small as a couple of weeks, and it is rarely wider than a year. You apply for the loan through an online service or brick-and-mortar lending service.
After a quick appraisal of your financial background, you are offered terms and interest rates. In many cases, you can have the money in your account within an hour of applying. That is one of the biggest benefits. Such loans help you to address an emergency in a straightforward way.
Certainly, no one is going to argue with the fact that many of us are facing one or several financial emergencies amidst these difficult times.
How To Figure Out If A Short-Term Loan Is Right For You
Short-term loans can vary wildly, where it concerns amounts offered, interest rate, payback window, and other factors. This can hold for a single individual reviewing multiple options from multiple lending possibilities. For this reason alone, we would strongly suggest reviewing and researching your options carefully.
At the end of the day, you have to try your best to avoid desperation compelling you to choose an option that will wreak even greater havoc over the long-term. We can almost promise you that with some loan options, you’re better off avoiding them at all costs. Payday loans are a good example of what we’re talking about, and we’ll discuss those momentarily.
Take a close look at your current finances, as well as your budget. Refinancing any loans or debts you may have is a good start, but we understand the need for more. With a clear idea of your budget and resources, you can figure out short-term loan terms and rates that will make sense for you. Be as brutally honest as possible with what you know you’ll have to repay a loan (including interest) over a few weeks, months, or even a full year.
Knowing where you stand can help you to avoid choosing a loan option that leaves you in a bad situation later on.
Nonetheless, and regardless of your resources, a payday loan is almost definitely one of the examples of short-term loans you’re going to want to avoid at all costs.
Why Payday Loans Are Almost Always A Bad Idea
If you see anything anywhere about a short-term loan type known as a single payment loan, you are probably coming across the concept of the payday loan. This type of loan has been around for years, earning a reputation of being almost universally reviled. Short-term loans can potentially work in very unique situations, but they are generally not appropriate for anyone.
To be sure, payday loans are a bad idea for anyone who needs money and isn’t certain about whether or not their employment situation will improve anytime soon.
Payday loans have the benefit of being incredibly straightforward. You can apply online, regardless of your credit score (virtually anyone can qualify for a payday loan), and get a substantial amount of money in less than an hour. On paper, all of that probably sounds extremely appealing to you. Unfortunately, there is more to consider with the payday loan.
Simply put, payday loans often come with terms that virtually no one can handle. The interest rates tend to be the highest among any loan options currently available. The terms, particularly in the context of when you will be expected to repay the loan, are notoriously unreasonable.
Finally, if you fail to pay back the loan to their satisfaction, you can find yourself facing a litany of painful financial penalties. This is what we mean when we say that a payday loan can make your ongoing Novel Coronavirus headaches into a blinding financial migraine.
So, does that mean all short-term loans should be avoided right now? No. However, to reiterate, you’re going to need to research your lenders and other institutions very carefully.
A Short-Term Loan Can Potentially Help During COVID-19
There are some meaningful benefits to short-term loans. Yet these benefits are highly dependent upon choosing a loan option that makes sense for your essential financial needs, as well as your resources to repay the loan promptly. It can be difficult to make such estimates right now, but it absolutely must be done.
In doing so, several benefits can be applied to your situation right now:
- Fast money: “Fast” should always be taken with a grain of salt, particularly where finances are concerned. Nonetheless, if you need money quickly, this is where you’re going to want to go.
- Collateral and credit are less important: Some require none whatsoever, but those tend to be payday loans. Many short-term loan options still tend to be compassionate, when it comes to these areas.
- Short-term commitment: As the name implies, short-term loans are indeed short-term commitments. The advantage with that is knowing you aren’t going to be under someone’s thumb for years to come. The short-term focus with these loans can make it easier to appraise your current finances, and figure out what you know you can repay as the situation demands it.
Consolidating your credit cards and refinancing your student loans are just two examples of what you can do with your loan, if you are currently not going through a financial emergency. Combined with a beneficial, hassle-free (relatively) short-term loan, you may be able to create a situation in which you can weather your current ongoing storm.
While things may seem overwhelming right now, it is important to remember that you are not alone during this chaotic, challenging pandemic.