Short Term Personal Loans and Fixed Terms

Short term personal loans with fixed terms describe a wide variety of loans. They are an easy source of credit, but the variety of sources fixed terms can be very confusing. Keep these tips in mind to set yourself up for success with a short term personal loan.

Short Term Personal Loans Come in Many Flavors

Short term personal loan amounts can be as little as $1000 up to $25,000. Loan repayment periods stretch from one year to ten years, but all are self-amortizing. This means the first payments are mostly interest with a little principal. As the loan progresses, more of the payment is devoted to principal. Extra principal payments save on interest costs and amortize the loan faster.

Short term personal loans with fixed terms can  be "secured" by collateral such as cash deposits, CD, vehicles or real estate. If cash deposits are pledged, they are locked in the account until the loan is paid. "Unsecured" loans - also called "signature" loans - are not collateralized.

Why Use a Fixed Short Term Personal Loan

Borrowers may take a short term personal loan for any reason including:

  • Medical needs
  • Debt consolidation
  • Tuition
  • Home renovations
  • Car purchase
  • Vacations
  • Financing business ventures

It is up to the borrower whether a short term personal loan is the best way to deal with a particular need.

Interest Rates on Short Term Personal Loans with Fixed Terms

The interest rates on short term personal loans with fixed terms can vary from 4% to 25%, depending on the source and type of your loan. The interest rate is fixed for the life of the loan. It will not adjust.

Finding the Best Short Term Personal Loan Interest Rates

Trusted banks and credit unions are usually the best place to start searching for the lowest interest rates. Secured loans at these institutions usually offer interest rates only two or three percentage points over the deposit rate you are receiving on the deposit.

Unsecured loans generally carry interest rates in the same range as typical credit card rates.

Credit and Income Matter Most

A good credit report and verifiable income are the basics of a good short term personal loan application. A history with the bank you are applying - a credit card account or bank account - also reflects positively on your application. Most lenders have simple online applications. Supporting documents are not usually required.

Borrowing Responsibly

To figure out a loan amount that you can repay comfortably, use a loan calculator to find your monthly payment. Add this to your other monthly debt payments, and divide by your gross monthly income.  If the result is more than .3 (30% of monthly income), then you may be overextending yourself.  Consider borrowing less, extending the repayment term of your loan, or pledging collateral to your lender to get the interest rate lowered.

Avoid These Short Term Personal Loans

Unsecured short term personal loan offers that look like a check made out to you usually offer a much higher interest rate than what you could qualify for. Compare the fixed terms offered with those offered by your bank first.

Also avoid payday advance loans - extremely short term loans of amounts from $100 to $2500 with a repayment window as little as a week. These loans have the highest interest rates - sometimes over 25%. These lenders tout quick application turnaround, but with today's technology, a bank can usually take an application over the phone and have money deposited into your account within 24 hours with much more favorable fixed terms.

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