Other than being prevalent in both individual and business worlds, financial emergencies need quick thinking and acting so that things won’t get out of hand. One of the most applicable solutions for unexpected financial challenges is to take a short-term loan to service your needs.
Thankfully, short-term loans are quite easy to access, and they often don’t have harsh terms that might make you want to think twice -but that’s where the trick is. Short terms loans often seem friendly to a borrower, until you make costly mistakes that will make you regret the decision to apply for such a loan.
To make sure that you don’t burrow a financial pitfall unknowingly, this article will discuss 5 unforgiving mistakes that you should avoid when applying for short-term loans. Let’s get started!
Mistake #1: Taking the first loan you get
If luck is part of your life, then you can always take the first loan you get and still be confident that it’s the best option in your situation. However, lady luck doesn’t always come along, so you must be a little bit vigilant when making your decision.
Just because you were offer a loan that seems favorable does not mean that it’s the best there is. Unless it’s an emergency that can’t wait, it’s good to do some loan shopping or comparison before settling for a specific offer. That way, you are less likely to miss out on more favorable terms, as compared to jumping at the first opportunity available.
Mistake #2: Not understanding the terms and conditions
When money emergency comes up, your main focus will often be what you can do and how you can get things back on track as soon as possible. However, that means that you will more than likely not pay enough attention to the terms and conditions of the loan that you are applying for.
Even though a short-term loan should be an excellent solution to whatever financial crisis you are dealing with, you must pay attention to the terms and conditions of the loan. Make sure that you are comfortable with the repayment period and the interest rate, among other conditions.
Mistake #3: Failing to understand the implications of defaulting
Just like any other loan, short-term loans can be problematic to the borrower if they fail to pay. In the majority of situations, creditors are left with no choice other than to add interest to the outstanding balance once you miss a payment.
What this means is that if you default the loan, the interest will keep accumulating, oftentimes at a higher rate on unpaid balances. Eventually, you are unable to pay off the loan or you end up in a situation where you have to take another loan to settle the unpaid one. This may get you into a cycle of borrowing that can be hard to get out of.
Defaulting a short-term loan can also ruin your credit score depending on the case, which can, in turn, lower the chances of securing loans in the future. Depending on your loan contract, even late payments can be a breeding ground for all sorts of issues between you and your lender.
Mistake #4: Falling a victim of a scam
There are lots of dodgy lenders out there who use all manners of dishonesty and trickery to swindle borrowers. They make their “businesses” look legit, while they are, in fact, illegal. Most of these loan sharks are not even registered with the right authorities.
Luckily, loan sharks are easy to spot. The first and most obvious sign is a lender that is not willing to commit the lending agreement to paper. Other signs to be wary of include lenders who don’t give a specific repayment timeline, offer cash instead of depositing the money in a bank account, and fail to come out clear when you inquire more about the loan.
Keep in mind that loan sharks will use uncalled awful tactics such as threats, intimidation, and other violent or tricky methods to seek payment.
Mistake #5: Taking out multiple loans
At times, the money that a lender offers you might not be enough to cover your expenses. If you find yourself in such a situation, the first thing that seems logical to you is to take out another loan to cover the remaining expenses.
This, however, is not the best way to tackle such a challenge, taking into consideration that it can be considerably difficult to balance more than one loan. Repaying more than one short-term loan can be troublesome, and there is a high likelihood that you will experience serious financial hurdles in the process.
In most situations, we have to make mistakes to learn valuable lessons in life. When it comes to money, however, that’s a very costly way to learn. In the monetary world, you’d rather learn from others and avoid the mistakes that can ruin your financial comfort.
By avoiding the mistakes discussed above when taking a short-term loan, you will be glad that you took out the loan and that it was meaningful to you in your time of need.