In this world where money is everything, about half of the population lives their everyday lives with only $2.50 in their pockets.
Even with the best plans for savings and insurance, you may always end up short on cash on one hand. This is why loans have become a savior for those struggling to earn enough for themselves.
Short term loans may not be suitable for every situation, so read on to find out if they are right for you and your emergency.
What Is a Short Term Loan?
Short term loan is a type of loan that you can get to support a temporary business or personal need. This loan has little to no collateral and you can repay it in a year or less.
Many choose to get a short term loan if they plan to create a start-up or run a small business. They’re also great for individuals who are in a bind due to a temporary but sudden cash flow problem.
You can quickly get one by submitting your application and proof of employment, which is typically done online. Then the loaning company will review it and if approved, they will provide the loan terms, like loan agreements, interest rates, fees, and repayment schedule.
Types of Short Term Loans
There are various types of loans available in Canada, each with different, terms, characteristics, and interest rates. So to know what type of loan fits you best, you have to review each type.
Merchant Cash Advances
This type of loan is a cash advance that acts and operates like a loan. The financial institution will advance an amount to you, the borrower. You will have to give your loan payments by allowing the lender to have access to your credit facility.
Every time a customer buys from you, some of that money will go to the lender. A percentage of your daily sales will go to the lender until the loan is fully repaid.
Line of Credit
Line of Credit (LOC) is like using your business credit card. A credit card has a limit and the business can tap into that line of credit when needed.
The financial institution basically sets the maximum loan amount that you can borrow. You have the flexibility to withdraw a loan amount in chunks or installments. However, you can’t go over the permitted limit, which is typically determined by your creditworthiness.
In return, the lender charges only on what you have withdrawn and not on the remaining balance of your loan. When you have to pay your loans, you won’t be able to withdraw until your due interests and principal are fully paid.
LOC is best for those who need a regular supply of credit. It also charges a lower APR compared to other types.
Bank Overdraft
In this type of short term loan, if you have insufficient money in your account when you’re withdrawing, the back will help provide for the rest. In return, however, the bank will outrageously high-interest charges.
Businesses have millions of transactions every day, and it can lead to a fast-falling bank balance. With a bank overdraft service, it helps avoid business interruptions due to possible rejected payments due to low balances.
You need to be extra careful with bank overdrafts. Some providers charge unreasonable interest rates from customers and some banks have paid millions in fines for these illegalities.
Online/Installment Loans
Online or installment loans can have an interest rate of 5% to 45%, determined by your credit profile. This type of loan is the easiest to get since you can do everything through your device. Within minutes after approval, the money gets wired to your bank account.
Car Title Loans
This loan allows you to use your vehicle as collateral as long as you own the vehicle. Car title loans typically allow you to borrow about 25% to 50% of your vehicle’s market value. It can also come with an APR of about 300% with repayment windows that last up to 30 days.
Payday Loans
Payday loans typically check your earnings to determine your borrowing amount. Repayments are made on the day of your paycheck or income.
The biggest drawback of this type of short term loan is that you have to pay in one installment when payday arrives. Payday loans can come with unreasonably high-interest rates of up to 600% and very short terms for up to two weeks.
Pros and Cons of Short Term Loans
Short term loans are your solution to sudden cash loss. If you need money right away, you can send your application and get approval right away. Many short term lenders can also deposit the cash into your account over a short frame of time.
There’s also no need to worry about getting a loan if you have less than the recommended credit score. The requirements for short terms loans are usually easier to meet since you’ll only be borrowing relatively small amounts. Short term loans also don’t need collaterals, like your car or home.
However, Canadians beware – interest rates and fees of short term loans can be quite high. For only a few thousand dollars, you may end up with an annual percentage rate (APR) going up to 400% or more!
Not only that but if you borrow from the wrong lender, your credit score will take the hit due to the unsecured nature of the loans. So be sure to always read the terms of the loan and find a reliable loaning service.
EasternLoans: Your Trustworthy Loan Solutions in Canada
Money might not be something you have on a daily, weekly, or even monthly basis. Life can throw unexpected curveballs at you, like unexpected bills, repair payments, or other surprises that you need to handle immediately.
That’s why we are here! EasternLoans offers quick loans to whoever needs convenient, fast, and easy cash. Of course, you need to meet our requirements to qualify for short term loans in Canada.
Contact us today so we can walk you through everything you need for your loan. Be sure to also check out our FAQs to get some needed answers about our loaning system.