When you need money for an emergency or unforeseen expense, you may think that your only choice is to go get a short-term loan. While short-term loans serve a purpose, you have another option, especially if you have decent credit. Both a signature loan and short-term loan will get you the money you need without requiring you to put up collateral to secure the loan. However, there are major differences between them. These differences are what makes a signature or unsecured personal loan the smarter choice.
Short-term loans generally have higher interest rates, which means that you will pay more for borrowing the money than you would for a loan with lower interest. Interest rates for short-term loans can be as high as 300 percent or more if you continue to roll your loan over after the initial repayment period. A signature loan, on the other hand, offers a more favorable interest rate. Interest rates for personal loans start at 10 percent.
Payday loans and short-term loans may require you to pay back all the money you borrowed at one time. For example, many payday loans are due in full after a period of about two weeks. A personal loan, however, requires much smaller monthly payments until the loan is satisfied. If you want to pay it all off in one go, you can, but you don't have to. A lower interest rate also equals lower payments.
Another reason why your payments will be lower on a signature loan is that you will probably have more time to pay it off. A personal loan is usually paid back over the course of several months, not weeks. However, some personal loans can be due within 30 days. It's up to you to negotiate the terms with your lending institution. Some personal loans, especially those given by credit unions, can have terms of 1 year or longer.
The beauty of working with a bank or lending institution rather than a payday loan store is that you can negotiate your terms. If you want a lower interest rate, lower payments, or longer repayment terms, you can ask for them.
As you can see, there are many reasons why signature loans are smarter than short-term loans. If you need an unsecured loan for any reason, why not try to get a personal loan first? Doing so could save you a lot of money.Share