It doesn’t matter if it’s a sudden trip to the emergency room or a broken down car. Something will eventually pop up that you’re not financially prepared for.
Even if you’re responsible with money, there’s no guarantee you’ll have enough to cover the cost. After all, there are bills to pay, people to feed, and materials you need for work.
That’s why it’s critical to find a solution during your financial rock bottom. Short term loans are a great way to pay back those unexpected bills when you need it the most.
Ideally, it’s a quick fix for a quick problem. However, some people don’t know what to look for when taking out a personal loan and fall into debt.
This is avoidable if you’re responsible and know some of the biggest mistakes to avoid. Here are 5 of the biggest mistakes people tend to make when taking out short term loans.
1. Not Coming to the Table With a Plan
Depending on your circumstance, you may be using a third-party lender instead of a bank. This isn’t anything to be ashamed of, but it doesn’t mean you can afford to be any less professional.
When it comes time to approach a lender about short term loans, be sure that you know what you have to offer. Come prepared with a full list of details, including:
- Your business credentials (if applicable)
- A full list of contact information
- Contact information for any secondary recipients of the loan
- A detailed outline of why you need the loan and what the funds will be used for
- A feasible and realistic timeline of when and how you can pay the loan back
Lenders want their money back and they want to assume you’re going to be reliable enough to pay them back. Always come with a clear, professional case when asking for a short term loan.
Remember, these are professional businesses. These professionals aren’t just handing you money, they expect to be paid back in a timely fashion.
Accordingly, expect to subject yourself to a fair deal of scrutiny before receiving the loan. Think of it like you would any other transaction. You wouldn’t enter a boardroom without a plan.
2. Neglecting to Pay Short Term Loans Back As Soon as Possible
Yes, when you pay your loans back matters every bit as much as just paying them back period.
Remember, your lender intended this loan to be a short-term solution only.
A loan isn’t a way to get yourself out of poverty, just to help you in the case of a difficult circumstance. Your lender is expecting their money back, and often with a sizable interest rate.
If you don’t pay your loan back quickly, you run the risk of accruing massive interest rates. Massive interest rates can put you into far greater debt than before, and at that point a loan is futile.
Remember the timeline mentioned in the previous step? Stick to it. There are plenty of online resources such as calculators that will help you figure out how much you can afford to pay back at a given time.
The more goodwill you can garner by paying back your loans, the better your relationship will be.
3. Ignoring the Binding Terms of Your Contract
Ultimately, any paperwork you sign with a lender is just that — a contract. It can be tempting to act on pure emotion alone when asking for a loan, but this can be detrimental.
It’s understandable that you’re stressed or nervous, but don’t let that keep you from reading every word on every line of the document. Be sure you have a strong grasp of the language of your short term loans paperwork before you sign anything.
You can expect this document to include all of the important details of your loan, including:
- Terms you’ll need to abide by
- A date that you’ll need to begin making repayments
- The amount borrowed
- The interest rate accrued
- Legal reprimands for failure to adhere to the document
Yes, you’re signing a legal document here. Don’t let your already tough situation get tougher. Be smart, and be vigilant. It’ll pay off in the end.
If you don’t understand something, simply ask the lender to clarify the term or condition. If you don’t feel comfortable with that, seek legal aid and ask their opinion.
What’s important here is that you understand what you’re getting yourself into. A loan can either be the best or worst thing for your financial life.
4. Not Keeping Your Credit Score in Mind
Many people have to go to a third party instead of a bank to secure short term loans due to a poor credit history. Typically, a third party lender is less likely to take your credit score into consideration.
They know you’re in a bit of a bind and want to help you while getting a return on their investment.
But whether you realize it or not, taking out a loan — short or long term — does play a part in your credit score.
Almost every financial decision you make ends up affecting your credit score one way or another. This can ultimately help or hinder your score.
If you pay back your loan quickly, for instance, you’re likely to build your score up. Likewise, failure to pay short term loans back on time can reduce your score.
When you’re taking out a loan, understand how it’s a factor in your overall financial health.
5. Taking Out Multiple Short Term Loans
Depending on your situation and past credit score, there’s a chance you may not get as much of a loan as you’d hoped. You may feel tempted to head to another third party lender to see if you can get the rest of the money you needed.
This isn’t advised.
Juggling multiple short term loans at the same time can get quite hectic quite fast. Focus on one short-term solution and worry about the rest at a later date.
Given the rapid-fire nature of modern life, it can be easy to forget about one loan, not to mention two or three.
Little Loans for Big Problems
Whether you’re a small business looking for extra help or someone who just needs to pay bills, life can get in the way. But it shouldn’t prevent you from bettering your financial future.
Little Loans is South Africa’s premier short term loans vendor. Apply for a loan today, or get in touch at +27 87 001 0475 if you have any questions.
All it takes to secure a better future is a few minutes.