Short-term loans are personal loans, also known as unsecured loans. The repayment length of these loans does not extend more than five years. They could be lump sum loans or instalment loans. They could be employed to meet small emergency expenses such as laptop repair and car breakdown and large planned expenses such as wedding and home refurbishment. Small loans aimed at meeting small emergencies are called instant short-term loans.

The repayment term of these loans varies between 14 days and a month whether you are put on an instalment plan or a lump sum payment plan. The former includes weekly instalments and, therefore, winds up in a month. Instant small loans are particularly targeted at subprime borrowers.

Banks and other mainstream financial institutions do not approbate applications for an exiguous sum of money. Such kinds of loans are particularly taken out from direct lenders. They do not hesitate to accept applications from bad credit borrowers. It is worth noting that the size of instant loans does not exceed $1,000. However, your lender will decide the lending amount based on your repaying capacity.

The upsides of instant loans

Here are the upsides of instant loans:

• Quick application process

One of the benefits of short-term loans is that you receive a quick injection of cash. These loans are used when your savings have fallen short of cash to meet unforeseen expenses. As the amount of money is small, you do not have to jump through hoops.

Your lender will make a decision based on the income and expense details you provide in the application form. Having submitted the application form, the process takes a couple of hours and then the money is credited to your account.

• Any purpose loans

Lenders will not ask you a reason for applying for these loans, which means you can use them for any purpose. On the other hand, instalment personal loans are restricted to the purpose. For instance, they cannot be used to meet any business expenses. Further, you will have to explain the reason why you want to borrow money.

If your goal is to renovate your house, it cannot be used for any other expenses such as weddings, medical bills, debt consolidation and the like. Once you obtain money in your account, you are completely unrestricted to employ it the way you want.

• A poor credit score is accepted

Small emergency loans are widely popular among subprime borrowers. As the borrowed sum is not large and the whole debt is to be discharged in a lump sum, lenders are not concerned about your bad credit rating. In fact, a few lenders do not run a hard credit check. It is presumed that the borrower must have a bad credit rating, so soft inquiries are made, but they are not sufficient to provide information about your credit history.

Instant short-term loans for bad credit are easily approved. Although they come with high interest rates, borrowers find them manageable as they are repaid in fell one swoop.

• Small monthly payments

Some lenders may provide you with these loans with an instalment repayment plan. This is normally feasible only when you are borrowing more than $1,000 and yet the repayment term does not exceed more than three months. You will be able to easily make your budget around payments. As you would know how much you have to pay every month, you can avoid missing payments.

The downsides of instant loans

Here are the drawbacks of instant short-term loans:

• High interest rates

Because these loans are taken out by poor credit borrowers, lenders charge high interest rates. As you are to discharge the debt in fell one swoop, you might miscalculate the actual cost of the loans. The loans could cost you up to 1500% APR, while long-term loans such as a $10,000 loan for bad credit will cost you much less than that as they are normally secured. In order to calculate the total cost of the loan, you should compare deals based on annual rates rather than interest rates.

• Risk of falling into debt

Another concern that these loans cause is that they may plunge you into an abyss of debt. While borrowers assume that such loans are more manageable than long-term loans, they overlook the fact that the entire amount is to be paid back on the due date, which adds pressure to your next month’s budget, too.

Suppose your monthly wages are $400, and you have some savings to meet unexpected expenses. Out of the blue, your car has begun acting up, and according to your mechanic, the total cost of repair is worth $250. As your savings are only $150, you tend to apply for a bad credit instant loan worth $100, which is to be paid back in full, along with interest of $50.

The next month when the debt becomes due, you find yourself that you are left with only $250 in your hand after settling your debt. This scanty money is not sufficed to meet your essential expenses, so you tend to borrow $150 again, and this cycle goes on. The debt will keep accumulating each time, thanks to hefty interest and finance charges. Eventually, you will find yourself in an abyss of debt.

• Bad impact on your credit score

Any default on instant loans will have a far-reaching effect on your credit score. They will appear on your credit file for six years, and, as a result, you will lose your chances of qualifying for a loan at a lower interest rate. On-time payments help boost your credit rating only when the debt is to be paid in instalments over a period of time.

The bottom line

Instant loans should be handled responsibly. It is enjoined that you carefully compare annual rates to choose the most affordable deal. On no account should you borrow money more than your affordability. Weigh up all upsides and downsides before arriving at a conclusion.