5 Tips to Getting a Short Term Loan with Bad Credit
Did you know that one in five Australians don’t have any savings at all? Or that four in 10 Aussies go through their entire income within a week of getting it? That’s right…
These are already pretty dire statistics, but what’s worse is that big banks are making it even harder to get a loan. In the early months of 2018, for instance, the rate of new loans issued dropped to 5.8% from 6.6% the year before.
There’s still some good news though. You may find it easier to qualify for a short term loan.
So, what is a short term loan and how does it work? Who are good candidates and how better are they compared to traditional loans?
Keep reading as we’ll answer all your questions in this post and even throw in a few loan application tips!
What is a Short Term Loan?
As with any loan, the “term” refers to the length of time that a loan is “active”. It’s the number of months or years that a borrower has to make regular payments towards the loan. The lender spreads out the loan repayments over this set amount of time.
That said, a short term loan is a type of loan that has a short tenure, usually three months. In this scenario, you have three months to pay back the loan in increments or instalments. Every month, for three months, you’d make a payment towards the loan to completely pay it off.
Let’s say your total loan amount, inclusive of interest, is $1,000, and it’s under a three-month term. You agree to make a once-a-month payment throughout the duration of your loan. In this case, you would make one monthly payment amounting to $333.33 for three months.
Short term loans are either unsecured or secured loans. Unsecured loans allow you to borrow money without the need for collateral. But because they don’t require “security”, they’re usually reserved for good credit borrowers.
Conversely, secured loans require collateral as a form of security for the loan. These can be any asset of value, such as motor vehicles, luxury items like Rolexes, and precious metals. When you take out a secured loan, you’ll pledge these items as a “back-up” for your loan repayment.
Secured loans give lenders the assurance that they can recoup the money that they loan out. This then makes them more inclined to grant or approve loan applications. In short, secured loans can be much easier to obtain than unsecured loans.
What Are the Advantages of a Secured Short Term Loan?
A secured short term personal loan is a quick way to get you out of a financial pinch. After all, you’re pledging security, which already makes you viable for a loan. You have a way to pay back the loan, so lenders are more likely to grant you the loan you need.
Moreover, the best non-bank lenders take only a day or even less to approve loans. So long as you meet their basic requirements, then you’ll know right away if your loan application is a go or no.
Also, short term loans make it easier for responsible borrowers to get out of debt faster. Since there’s a shorter repayment period, you can pay off your entire loan within just a few months. You’d be free from debt much faster than if you took out a long-term loan.
Whereas banks can take weeks and even months to process loan applications. And even if you do get a reply from them within a few days, it may only be a note telling you that they rejected your loan. Most bank loans are also long-term, so accepting one means you’d be in debt for years.
Getting Approved for a Short Term Loan Even with Bad Credit
While short term loans are easier to get than traditional loans, your bad credit may still get in the way. The good news is, there are ways to secure a short term business loan or personal loan even with bad credit.
Here are a five tips to get an Approved Short Term Loan
Consider Applying for a Vehicle Loan
If you need cash ASAP and you have bad credit, consider taking out a loan secured by your vehicle. It can be any car that’s in working condition, so long as you’re the sole owner.
Because you’re pledging your car as security for the loan, you don’t have to worry about bad credit scores. Your credit score shouldn’t matter since that car you own already serves as proof that you can pay back the loan.
Use Any Unencumbered Asset as Collateral
Aside from cars, you can turn any unencumbered asset into a quick source of cash, on the spot. Regardless of your current credit score, you should be able to secure a loan against these assets.
You can take out a loan against your motorcycle, truck, or even a boat or jet ski! So long as you are the sole owner and you don’t have any other current loan against it, then you should be good to go.
Choose a Lender That Offers Bad Credit Loans
Some types of short term loans are specifically offered to borrowers with bad credit too. With bad credit loans, it doesn’t matter if you have below-average credit scores. This is something that you can’t expect if you apply for a traditional bank loan.
Opt for No Credit Check Loans
Whenever you apply for a bank loan, the bank will perform a credit enquiry. They do this to check your credit file and score, which then lets them gauge how creditworthy you are.
So, if you have a bad credit score, you can expect a bank to reject your loan application. But since you’re in dire need of cash, you may feel tempted to apply with several other banks.
All those applications will mean multiple credit enquiries. The problem is, all those credit checks have the potential to further hurt your score.
That’s the last thing you want to happen, so you should consider applying for no credit check loans instead. As their name suggests, these loans won’t pull out your credit file.
Since the lender won’t run a credit enquiry on you, then it won’t matter if you have bad credit. Nor do you have to worry about damaging your already low credit score since there’s no need for a credit check.
Make Sure You Can Supply Proof of Sole Ownership
If you decide to take out a secured loan, make sure you gather the paperwork that proves your ownership! For instance, with motor vehicles, the registration should be under your name. You should also bring your insurance documents, along with at least two valid IDs.
What’s important is to prove that you are the only owner of the collateral you’ll use. True, short term lenders are easier to work with than banks and credit unions. However, they still need the collateral to be free of outstanding loans.
Get Relief from Your Financial Woes Now
There you have it, the ultimate guide to answering your question, “what is a short term loan?” Now that you know what it is and its benefits, you can decide if it’s the right loan for you. If you do decide to apply for a short term loan, make sure that you keep our tips in mind to boost your chances of approval!
Think a secured short term loan is your best option? If so, then know that we’re here to help. Apply online now so we can get you the funds you need ASAP!
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