Short term or payday loans have been around for a while now and have often been vilified as the cause of many people’s financial problems.  And it is true that there were unscrupulous companies in the beginning or people who didn’t realize what would happen if they didn’t repay their loan.  But the world of short term loans is very different now and there are times when these types of loans can be very helpful.

Avoiding a default

One loan to pay another isn’t a good idea but if you know that you will have the money to clear the short term loan, then this can work.  For example, if you will default on your personal loan or mortgage in three days but your next pay packet comes in a week, then you may save yourself money and a lot of stress by using a short term loan to clear the payment.  Then when you get paid a few days later, you can clear the short term loan and only pay a small amount of interest.

An example of the kind of loan you can use in this position are title loans online.  These use the title to your vehicle as temporary equity to take out the loan and means even if you have a poor credit rating, you can get a short term loan.  There is always the case that if you didn’t pay the loan, eventually the company could repossess your car but as long as you plan your borrowing, then this should never happen.

dollar 544956 640 - Examples of When Short Term Loans Can Be Helpful

Building up your credit rating

When you have had poor credit and want to start building it up again, short term loans can be an ideal way to do this.  Even if you don’t need the money, you can take a loan and pay it off and because these loans are counted as very high risk, they help boost your credit score.  Of course, taking too many will result in too many credit searches against your record so don’t go too far with the idea.  But one or two over a time can help boost your rating and place you better to get bigger, long term loans and even mortgages.

Bridge loans for businesses

Short term loans can also be used by businesses as bridge loans until a payment comes through.  We have all had the situation where a bill is due but a payment is still in processing from a client.  Using a short term loan to pay the bill then clear the loan when the payment is cleared can be cheaper than having default charges and a black mark against your credit rating.  Just compare the charges versus the interest to make sure you are getting the best option.

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