Short-term loans are affordable, flexible, and easy to qualify for!
Short-term loans are one of the most popular types of credit products in New Zealand. They include quick loans and payday loans and can be used for any urgent financial need from buying groceries to taking a small vacation.
There are many instances when we find ourselves in a desperate financial situation with empty pockets and little or options to help us remedy the situation. In such emergency situations, the best way out would be to get a short-term loan.
Quick and easy online loans
You can repay what you owe as soon as you get income. However, this option is not always the most suitable. It should not be considered as a way out every time you run out of money or cannot pay your bills. There are some risks attached to short-term loans.
Using such a credit product may actually put more burden on your finances instead of providing some kind of relief. Before you submit your loan application for a short-term loan, it is strongly recommended that you make yourself familiar with the basics.
That way, you will be able to make the correct decision based on your personal situation.
What are short-term loans?
Short-term loans are basically quick online loans, which are normally provided to individuals who need a temporary cash loan for paying their bills. The loans are only for short-term use.
No more than a few hundred dollars can be borrowed at one time. You will be expected to make the repayment after a few weeks. Some lenders may require you to leave a written check when you take out the money. The lender will cash the check once you have sufficient funds available to make the repayment.
In case you fail to repay the loan, you will have the option of rolling it over. Basically, the term of the loan will be extended so you will have more time for repaying it. But at the same time, the fee amount gets higher with the passage of time and the loan becomes even more expensive.
Do I need a perfect credit score?
No. You don't need a perfect credit score to apply for a short-term loan. Bad credit loans are available for consumers who might have a bad credit history or no credit score at all. The easy access comes at a price, however, when compared to other types of loans available on the market, short-term loans are found to be among the most expensive.
How much interest will I pay on a short-term loan?
The annual percentage rate can be quite high. It can even reach several hundred per cent in certain cases. For example, for borrowing NZ$100, you may expect to pay NZ$20 in the form of charges to the lender within 2 weeks. This means that you will be paying an annual percentage rate of 426% on your short-term loan.
There are many examples of debtors ending up paying more than 1,000% annual percentage rates on their loans. The most obvious and biggest demerit of these types of loans is that the cost of borrowing is quite high.
At the end of the day, your financial situation may actually worsen instead of showing any signs of improvement especially if you lag behind with your payments.
These loans are never a good option for individuals who do not have a steady source of income as they can reduce the amount of money available for spending even further. All lenders should comply with borrowers' rights. However, it is equally important to borrow responsibly.
You may utilize this option once or twice when you need a loan on an urgent basis. However, it should never be incorporated into a long-term financial strategy. The rate of interest is often very high.
Short-term loan solutions for financial emergencies
Short-term loans might be considered feasible for dealing with temporary financial emergencies, but you should definitely not rely on them for long-term use.
Moreover, in case you do not have a steady source of income, there is always the chance that the checks you signed may bounce. This would not only ruin your credit rating, but your bank would impose further overdraft charges. However, sticking to your repayments will improve your overall credit report.
In the long run, the bank may refuse to provide any kind of cooperation. Debtors can take legal action should you default on your loan repayments.
Short-term bank loans in New Zealand
Over the past few years, more and more banks and other traditional financial institutions have been taking a greater interest in the short-term loan market. This is mainly because of the high level of profit that lenders are making in this niche. Traditional bank loans are always considered to be the most preferable option due to the lower cost of borrowing.
Short-term loans in NZ provided by banks are not in any way different from other kinds of short-term loans even though the names and terms and conditions may vary.
Moreover, under certain circumstances, the short-term loans provided by banks may actually the least favourable option. This is because the bank has access to your bank accounts and may pull out the funds as soon as they come in.
Risks associated with short-term loans
Short-term loans have a high degree of risk for obvious reasons especially if you are taking them from a bank.
1. While this option is always available, you should keep in mind that there are some alternatives which you can use as well. You should ensure that you always have an emergency fund in place. Still, this may be very difficult to achieve for those who are already in a dire situation.
2. Your credit score should be such that you will not face any trouble borrowing money from lenders.
3. It is always a good idea to have a credit card at hand.
4. An unsecured loan can always be availed from a bank or credit union. Lastly, you may consider renegotiating the repayment plans on your existing loans with the lenders to get more disposable income during the month. This is always suggested by financial experts.
Short-term loan advantages
If you make your payments on time, you will avoid all those extra charges and interest payments and keep your spending under control. Moreover, these loans are easy to get and provide quick relief from an impending financial emergency.