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What are the advantages and disadvantages of short-term loans

The various unforeseen situations in everyday life can suddenly lead to the fact that you urgently need money, but as soon as none is available. An accident or a major repair on the car, a broken washing machine or damage to the house – the situations are varied. Large sums are not always required, but even smaller sums of 1,000 euros can make a big hole in the budget. Where to take the money so fast? The solution is a loan. To be quickly debt free again, opt for a short-term loan with a low sum and a short term. At first glance, such a loan may seem advantageous, but it also has disadvantages.

A short-term loan – what is it?

A short-term loan is characterized by a very short duration, which is usually 30 days. If necessary, for some short-term loans, the terms can be extended to 60 days or even six months. The short-term credit is characterized by a very low sum, it can be between 50 euros and 1,000 euros, with some providers, short-term loans can be taken with a sum of up to 2,000 euros. The purpose of such short-term loans is to overcome a short-term liquidity shortage. You do not always want to exhaust your credit. Not every bank customer gets a credit line. Such a short-term loan can be an alternative.

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Short-term loans – advantages and disadvantages

Advantages of a short-term loan are the very fast availability, the low loan amount and the very short term – you are quickly debt free again. For most providers of short-term loans, it is only necessary to get the money back on time at the end of the term, even a negative bank entry plays a not very big role. Often it depends only on how high the applicant is already in debt. A decisive disadvantage is the rather high interest rates, because a short-term loan is only an interim financing. No retail bank in Germany will agree to grant a short-term loan with a term of only 30 days, because these banks are securing themselves. A short-term loan can be requested from various online providers. A disadvantage with many of these providers is that new customers only get a loan of 100 or 150 euros. This is a kind of credit check. If the provider gets the money back on time, it will be easier for the borrower to get a short-term loan the next time, and a higher sum can be granted. Different providers pay royally for the short-term provision of the money, they charge an additional fee. Another disadvantage is the short-term repayment of the amount in only one rate, because the money is not always available so quickly.

Condition examples for short-term loans

The conditions differ for the various short-term credit providers; Such loans may be issued with different maximum amounts and maturities depending on the provider. For some providers, short-term loans are given up to a sum of 3,000 euros, with interest rates of about 9 percent. For the short-term provision of money, a fee of 25 € may be charged. Also, the loan amount limited to 500 euros for new customers and 600 euros for the second loan is possible, the term can be flexibly chosen by the customer between 7 and 45 days. Different providers secure themselves by assuming a minimum monthly income, for example of 700 euros. The repayment of short-term loans is usually in one sum together with the interest at a given time, but is sometimes the repayment in two installments possible, mostly a rather high fee is charged.

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Who can even receive a short-term loan?

Anyone who receives a short-term loan depends on the provider. The applicant must be at least 18 years old, and different providers also require a minimum age of 21 years. The awarding of a short-term credit may also be tied to a monthly income of a certain amount, for example 700 Euro. However, short-term loans are not given to applicants who are heavily in debt or already have a personal bankruptcy.

Collateralization of such loans

Since short-term loans usually do not carry out a comprehensive credit check of the applicant, the question of collateralization is an important aspect. Many providers require a salary assignment for the collateral; that is, if the borrower can not repay the loan, the salary of the borrower is seized. If the borrower is not in employment, he must provide a guarantor who meets the relevant requirements. If the applicant can not provide a guarantor, he usually has to take out a guarantee insurance, the costs of which are often disproportionate to the loan amount.

Conclusion: A short-term loan can help to bridge a short-term financial bottleneck; It is characterized by a very short term and a very low loan amount. It is not offered by branch banks, but by various online banks. The advantage of such loans is the very quick provision of smaller amounts of money, but such a loan has significant disadvantages. The repayment must be made within a short time and in one sum; In addition to high interest rates, high deployment fees are often charged. For security purposes, if the borrower has no employment, a guarantor is required.