Short-term financing is attached to a whole different set of acceptance criteria compared to long-term loans. A number of lenders may deliberately provide vague explanations about how their loans work in the bid to win over financially vulnerable clients. Hence, it’s important to understand some basic principles before committing to this type of loan.
In order to best equip you with a decent level of knowledge regarding short term loans, it’s a good idea to ask some common yet crucial questions of your lender.
- What’s involved in the application process?
Most applications can be completed online for the ease of the customer. However, it’s wise to check that the website engages the proper precautions so as not to put your personal details at risk. An easy way to do this is to check that the URL begins with https:// – if the ‘s’ is absent, the connection is not secure.
- Will there be any physical papers or in-person meetings?
Usually not, given most applications can be processed purely online.
- Will you conduct a credit check?
While credit checks are common, lenders are typically more flexible in this regard compared to long-term loans. A bigger emphasis is usually directed towards the applicant’s income and financial activity as opposed to their credit history.
- Will you call my employer?
Potentially – this is to confirm the applicant is indeed, employed, and that the income they have stated within their application is correct. The more comprehensive the documentation you provide, the less likely it is that a lender will call your employer.
- How much can I borrow?
This will usually depend on the review of your application. Most short-term cash loans generally range from a few hundred to a few thousand dollars, however much of this amount is determined by things like employment status and current income. Be sure to assess your situation carefully and gauge – simply borrowing money may not solve your financial problems.
- How long are the terms?
This depends on the lender, but repayment terms can range from as little as 16 days to as long as a full year. It is vital to ensure that all loan terms are clearly outlined in a contract before agreeing.
- What interest and fees are charged?
The following fees are charged in accordance with the Australian Government fee caps on short-term cash loans:
- One-off establishment fee of 20%
- Monthly fee of 4%
- Applicable government fees or charges
- Fees or charges for defaults on the loan
- Enforcement expenses if a court proceeding must occur to recover money owed
- How does the interest compare to long-term loans?
Unlike personal loans or home loans, short-term cash loans charge interest monthly as opposed to annually. This means applicants may pay up to 24% in interest fees per month until the loan is paid off.
- How long will I need to wait until receiving my cash?
Your application should be pre-approved or denied within a matter of minutes, followed by full approval within a day or two. If this is the case, you can usually expect to receive the finances within 24 hours – it all depends on the lender and your bank.