A short term installment loan can be defined as a type of credit provided to a borrower who agrees to repay the lender in equal-sized – typically monthly – payments. Traditional short term installment loans have been part of the credit landscape for more than a century. They were originally intended to provide modest amounts of credit to consumers, giving them a safe alternative to black-market lenders, commonly known as ‘loan sharks’.
How Short Term Installment Loans Work
Short term installment loans are typically $5,000 or less and are used by the borrower to meet a pressing need. This type of loan may be secured from numerous types of credit institutions. Repayment is usually over the course of one to three years via monthly payments. On occasion, payments may be deducted automatically from the borrower’s checking or savings account.
Interest rates on this type of credit are typically higher than they are on larger, unsecured forms of credit. Exactly how high will depend on the institution the lender is borrowing from, as well as their personal credit history. Borrowers should always make sure they understand the particulars of the repayment process – especially the interest rates involved – before applying for a short term installment loan.
What do People Typically Use Short Term Installment Loans For?
People use short term installment loans for a variety of reasons. Some have a pressing need that cannot be addressed any other way, while others are looking to secure some form of long term benefit that’s more difficult to quantify. In general, though, these are the most common reasons people apply for short term installment loans.
- Home Repairs – Often times in the aftermath of a hurricane, tornado, flood, blizzard or other natural disaster, homeowners will be faced with the need to effect immediate repairs to their home. Perhaps part of the roof has been blown off, or flooding caused damage to the furnace. A short term installment loan can provide fast, much-needed capital to address the immediate need and preserve the value and safety of the home.
- Unexpected Medical Expenses – There comes a time in the life of most people when they are suddenly hit with an unexpected medical expense. It might be for themselves. But just as often it is a loved one who requires medical attention. Insurance policies today often come with a laundry list of deductibles that can leave an individual in a very tight financial bind. To cover the unexpected expense some will apply for a short term installment loan.
- Auto Repairs – Unless you live in a city with a robust, safe, affordable and easily accessible system of public transport, chances are your car is going to play an important role in your ability to earn a livelihood. Unfortunately, cars have a habit of breaking down when you need them most and again, there are often more things insurance does not cover than things it does cover. In such cases, a short term loan may be a viable option.
- Emergency Help with Day to Day Expenses – Roofs are not the only thing that can suffer during a natural disaster. Many people emerge in the aftermath to find their place of employment in shambles as well. In such cases, it may be weeks before the owner is able to get things up and running again, and in the interim a person may require a short term installment loan to make ends meet.
- To Pay for Schooling – Technology these days is changing at breakneck speed. As such, it’s not unusual for a person to find they need to attend school for a time to upgrade their skill set. This type of supplemental education can enable a person to stay relevant in today’s fast-changing economy and is typically money well spent.
- To Improve their Credit – It’s not all doom and gloom when it comes to short term installment loans. Sometimes a person will take out a short term loan simply to enhance their creditworthiness. While there are several different types of loan a person may wish to consider in order to improve their credit score, short term installment loans are certainly one.
The above are just some examples of why a person may apply for an installment loan. There are plenty of others. But we need to move on.
Why Do People Prefer Installment Loans Over Other Types of Credit?
There are a number of reasons why someone would prefer a short term installment loan. Here are a few:
- They’re Simple – This type of loan is one of the simplest to apply for. Many financial institutions offer short term installment loans that allow the borrower to begin the application process online. After that, they only need to appear in person to finalize the application and learn whether they were approved.
- They’re Faster than a Standard Bank Loan – This is especially true in cases when the person began the process online. In many such instances, the borrower can have a decision the same or next business day. Once approval is granted, the money is disbursed in short order. Most borrowers will opt to have the money deposited directly into their bank account.
- The Requirements are Less Restrictive – In many cases, a person can be approved for a short term loan even if their credit is less than perfect. Typically, all the prospective borrower needs to do is demonstrate they are capable of repaying the loan, show viable ID and meet a few other basic requirements.
What are Those Requirements?
As we mentioned, requirements for this type of loan are typically less restrictive than they are for a traditional bank loan. While each lending institution is likely to have a couple of unique requirements, most will use the following as a baseline:
- Proof of Sufficient Income – These are loans after all and not grants. As such, you will need to prove you have sufficient income to make the required payments. You don’t necessarily need a regular 9 to 5 job. If you can prove you earn enough working from home that may suffice.
- A Bank Account – Most lenders are going to want the borrower to have a bank account. It doesn’t have to be laden with cash. After all, if it were, you wouldn’t need a loan. If you don’t have an account, provision may still be made to disperse the funds in the form of cash. Although a bank account is preferred in most cases.
- Valid ID – In most cases, a valid driver’s license will suffice. Although some institutions may want to see a birth certificate, passport or some other additional type of government-issued identification.
- A Valid Physical Address – Those living off the grid and using a PO Box to communicate are going to find it very difficult to obtain a short term installment loan. After all, the lending institution needs to know the person they are giving money to isn’t going to take it and disappear into the ether.
Short term installment loans can be a life-saver for individuals and families in need of a bridge to span a funding gap. They are not business loans and should not be used as such. That said, they are convenient, simple and the borrower will typically receive approval from the lender faster than they would from a traditional bank.