There are some instances in life that’ll drive individuals to take out a loan. It might be because of unforeseen healthcare costs, extra vacation expenses, business financing, or perhaps because you want to purchase a valuable item. Regardless of the borrower’s reason, it’s always helpful to search for the ideal loan product that meets their needs and financial capacities.
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 seems unfamiliar, read more to see if this is an option for you.
What is a Three-Month Loan?
Apparently, a three-month loan is a specific type of short-term loan where borrowers can repay the amount in equal monthly installments, with a defined interest rate.
It’s easier to apply for three-month loans than other traditional credit products. All that matters here is whether or not a loan is manageable in your present financial position.
The lender decides the loan amount depending on the applicant’s financial capacity. This may not be in equal installments because the final installment could be greater than the previous two. A three-month loan is appropriate if you need a small amount of money and wouldn’t want to cough up a high-interest rate.
Payday Loan Vs. Three-Month Loan
Both payday loans and three-month loans are short-term loans. The only difference between these two is the loan term. For payday loans, you must repay the loan in full, plus the interest rate within 14 days or by your upcoming paycheck, while a three-month loan is paid in installment for three months.
Payday loans target borrowers with paychecks. However, the amount of interest you’ll pay on the funds you borrowed isn’t worth it. You must return the borrowed amount and the high-interest rate, and you won’t be permitted to take out another loan to pay off the existing payday loan.
On the other hand, a three-month loan will offer you three months to repay the amount so you can plan your budget and you won’t get short on your estimates.
Most people take out payday loans because they are confident that they can repay the money in their next paycheck. However, unanticipated financial needs will arise along the way, even before the next paycheck arrives. Consider the stress if your monthly budget is knocked off by unexpected costs and a part of your salary is already dedicated to the loan payment.
How Do I Qualify for a Three-Month Loan?
Most of the time, three-month loans have comparatively lesser rates of interest over other short-term loans. That’s why many would opt to apply for one. Now, there are a few eligibility criteria that a borrower must meet for this loan.
The borrower must be an 18 years old or above citizen who’s currently employed
The borrower must be a resident of the United States of America
The borrower must have a bank account or credit card
The lender will assess the borrower’s financial capacity, and then the loan amount will be finalized.
Risks of Taking Three-Month Loans
To help you come up with the decision to either take this type of loan or not, here are the disadvantages of three-month loans that you should consider according to CreditNinja’s perspective on 3 month loans.
This loan should be repaid in three months, and a longer repayment period indicates you’ll pay more interest on your debt, increasing your overall borrowing expenses.
Additionally, like any other credit, taking out a three-month loan can grow risky if your personal circumstances make it unmanageable. Only apply if you are positive that you’ll be able to repay the loan on time every month.
Alternatives to Three-month Loans
If you think that a three-month loan isn’t a good choice, some alternative loan products may work for you. Learn more about them here.
Line of Credit (LOC)
Many banks and credit unions advertise lines of credit as bank lines or personal lines of credit. Basically, an LOC is an account that allows you to borrow funds when you need them, up to a fixed limit, by using a bank card or writing checks to make purchases or cash transactions.
An overdraft allows you to borrow money from your current account by drawing more money than you have in your balance. Of course, when bills are due, and payday hasn’t arrived yet, we would find a source of funds to address such a financial situation. It’s a good idea to have an overdraft if you find yourself in one of these scenarios.
Invoice financing is a method of borrowing money according to what your customers owe you. It works by using unpaid bills to prove that there’s money that you’ll receive from your customers.
Borrow from Family and Friends
Most of the time, family members lend money to one another at a cheaper interest rate than a bank would. Moreover, family and friends don’t look at your credit history before lending you money.
If you think this is a terrible idea, there’s a right way to do it so there’ll be no guilt and resentment between parties. For example, you can come up with clear repayment terms to avoid straining your relationship.
Three-month loans are attractive options for those who need quick cash. In addition, the repayment period is quite favorable to borrowers wanting to preserve their budget plan. However, it’s always best to evaluate your financial situation before deciding to apply.