There are cases in life that will cause individuals to take a loan. It could be due to unforeseen health expenses, additional vacation expenses, financing a business, or maybe because you want to buy something of value. Whatever the borrower’s reason, it is always helpful to seek out the ideal loan product that meets their needs and financial capabilities.
Short term loans are popular among clients who often face financial emergencies. The three-month loan is a common type of short-term loan. If this doesn’t sound familiar to you, read on to see if it’s an option for you.
What is a three month loan?
Apparently, a three month loan is a specific type of short term loan which borrowers can repay the amount in equal monthly installments with a set interest rate.
It’s easier to apply for a three-month loan than other traditional credit products. All that matters here is whether or not a loan is manageable in your current financial situation.
The lender decides the loan amount based on the financial capability of the applicant. This may not be in equal installments because the last installment could be higher than the previous two. A three month loan is suitable if you need a small amount of money and don’t want to spit out a high interest rate.
Payday Loan Vs. Three month loan
The two payday loans and three-month loans are short-term loans. The only difference between the two is the length of the loan. For payday loans, you have to pay off the loan in full plus the interest rate within 14 days or before your next paycheck, while a three-month loan is paid off in installments for three months.
Payday loans target borrowers with paychecks. However, the amount of interest you will pay on the funds you borrow is not worth it. You have to return the borrowed amount and the high interest rate, and you will not be allowed to take out another loan to pay off the existing payday loan.
In contrast, a three month loan will give you three months to repay the amount so that you can plan your budget and don’t run out of your estimates.
Most people take out payday loans because they are confident that they can repay the money on their next paycheck. However, unforeseen financial needs will arise along the way, even before the next paycheck arrives. Consider the stress if your monthly budget is cut by unforeseen costs and part of your salary is already spent on paying off the loan.
How do I qualify for a three month loan?
Most of the time, three month loans have comparatively lower interest rates than other short term loans. This is why many would choose to apply for it. Now, there are some eligibility criteria that a borrower must meet for this loan.
The borrower must be a citizen of 18 years of age or older who is currently employed
The borrower must be a resident of the United States of America
The borrower must have a bank account or a credit card
The lender will assess the financial capacity of the borrower and then the loan amount will be finalized.
Risks of taking out three-month loans
To help you decide whether or not to take out this type of loan, here are the disadvantages of three-month loans that you should consider depending on: CreditNinja’s take on 3-month loans.
This loan should be paid off in three months, and a longer repayment period indicates that you will be paying more interest on your debt, which will increase your overall borrowing expenses.
Plus, like any other loan, taking out a three-month loan can become risky if your personal circumstances make it unmanageable. Only apply if you are sure you can repay the loan on time every month.
Alternatives to three-month loans
If you think that a three month loan is not a good choice, some alternative loan products may work for you. Learn more about them here.
Many banks and credit unions advertise lines of credit as bank lines or personal lines of credit. Basically, a LOC is an account that allows you to borrow funds when you need them, up to a fixed limit, using a bank card or writing checks to make purchases or make cash transactions.
An overdraft allows you to borrow money from your checking account by drawing more money than you have on your balance. Of course, when bills are due and payday has not yet arrived, we would find a source of funds to deal with such a financial situation. It’s a good idea to have an overdraft if you find yourself in any of these scenarios.
Bill financing is a method of borrowing money based on what your customers owe you. It works by using unpaid invoices to prove that there is money you will receive from your customers.
Borrow from family and friends
Most of the time, family members lend each other money at a lower interest rate than a bank. Plus, family and friends don’t check your credit history before they lend you money.
If you think this is a terrible idea, there is a right way to do it so that there is no guilt and resentment between the parties. For example, you can offer clear repayment terms to avoid straining your relationship.
Three-month loans are great options for those who need quick cash. In addition, the repayment term is quite favorable to borrowers wishing to preserve their budget plan. However, it is always best to assess your financial situation before deciding to apply.