If you need cash to cover an unexpected expense or you've fallen behind on your monthly bills, a short-term loan can help keep you financially afloat. A 90-day loan is one option to consider if you're confident you can repay it relatively quickly. There are distinct advantages and disadvantages to this type of loan.
How They Work
Ninety-day short-term loans are often called payday loans or cash advance loans because you write a check to the lender for the amount you want to borrow, plus a service fee. The lender holds onto your check as collateral, and the full amount of the loan is due at the end of the 90 days. You can either let the lender deposit the check or pay another service fee and roll the loan over for an additional 90 days.
Getting a short-term loan is relatively easy compared to other types of loans. Typically, all the lender needs to approve your application is your ID and your most recent pay stub. If you're getting a 90-day loan from a pawn shop, you'll also need the property you're using as collateral. Car title lenders need the vehicle's title for approval. If you plan to have the money directly deposited into your bank account, you'll need your account information or a canceled check. There are no credit checks involved, and the money is usually deposited to your account within one to two days.
Pros and Cons
The most obvious benefit of a 90-day loan is the convenience. With a bank loan, your finances are subject to closer scrutiny, and it can take longer for you to get approved. The biggest drawback associated with short-term loans is the interest rate. According to the National Consumer Law Center, the annual interest rate on a short term loan can be as high as a staggering 782 percent. The finance charges also increase every time you opt to roll the loan over for another 90 days. You could end up digging yourself deeper in debt if you can't pay off the loan in full at the end of the term.
The Federal Trade Commission (FTC) recommends reading the fine print of any short-term loan agreement carefully so you know exactly what you're paying for. It's also a good idea to consider alternative sources for loans. For example, the FTC suggests looking into a short-term loan from your local credit union or even taking out a cash advance from a credit card. Your card issuer might charge you a higher interest rate on cash advances, but it's likely to be less than what the payday lenders offer, and you won't be pinched for time to get it paid off. If managing your finances has become a struggle, it may be helpful to get professional advice from a certified credit counselor.
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