If you are uncertain about how to wisely use your loan, you should only use short term loans in an emergency. Whether business or personal. Because these loans are very expensive, you don’t want to get caught up in them unless it’s an absolutely necessity. You shouldn’t take out more than one loan, as multiple loans can result in endless problems.
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Defining Short Term Loans
As you may know from its name, a short term loan is a loan that you pay off in a matter of weeks, sometimes up to three months. In other words, it's a loan that you pay off in a short span of time. These loans are smaller than most, starting at around $100, $300 or $500. Interest rates are much higher than other loans and must be provided along with your principal loan and associated fees at the time of repayment. Some lenders provide an extension, but it will come at a cost. In order to qualify, you will need a checking account. Monthly income depends on the lender, but short term loans are typically for the lower income demographic. In summary, when you need cash fast for personal or business expenses, short term loans are your ideal solution. Of course, this is only if the expense requires a smaller capital.
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The Debt Cycle
The debt cycle is the continuance of borrowing loans which increases your debt. Never spend more than your business can bring in. Let’s assume you take out a payday loan (form of short term loan) and you pay it off but realize you can’t cover other expenses. You then take out another payday loan and place yourself in the debt cycle. To avoid, only take out one loan. If you need larger capital, consider other loan alternatives.
Whether you’re a business owner or a mother who needs to pay off her child’s medical expenses, you must be wise when you are dealing with short term loans. Create a budget for now and the near future. Determine how much money you really need. Once you figure this out (because of the expenses), only take out what you need, nothing more. A good budget will also keep you out of the debt cycle.