You may need a short-term loan to meet your emergencies or small needs. If you have experienced the loan, you may be familiar with its proceedings. It generally hosts competitive interest rates and terms. The ease of availability and lack of collateral foundations are the prime reasons.
Setting strict terms helps both the loan provider and the borrower. It enables you to remain financially conscious and repay the dues timely. However, do you know that knowing about some detailed terms may prove beneficial? It could help you fetch low interest or reduce interest liabilities on a short-term loan.
Let’s begin with the basics first.
What does a short-term loan imply?
Short-term loans are unsecured instalment loans that help one meet small or emergency cash needs. The repayment term stays short (for up to 3- 12 months) on the loan. The payout stays around €3000 for any of your minimal cash needs. As these are small-term loans, the loan provider does not require collateral or a guarantor on a loan. However, if you lack a verified earning source, you may need to provide any of these according to the situation.
The monthly payment amount stays fixed until the loan term. However, missing a payment or defaulting may lead to extra interest and penalties. You can set CPA (continuous payment authority) to repay the dues automatically. It helps the lender receive the payment from your salaried account on a specific date every month.
Would bad credit be an obstacle to getting loan approval?
No, short-term loans prioritise a person’s affordability over credit score. You can get a loan with a credit score of 560 or less. The basic criterion is that the borrower should be able to afford the monthly payments without affecting essential expenses. For this, you must provide valid income proof, recent bank statements, and current employment status.
For example, you may get small loans in Ireland if you need urgent loans of €1000 with basic earnings of at least €8000. Your income should be higher than the amount you need. It reveals that you have room for the loan payments and can repay it on time. Always borrow an amount less than your monthly expenses. Otherwise, it may hamper the loan payments. You may also face rejection.
How would you benefit from paying less interest on a loan?
Paying low interest on a loan is directly proportional to whopping savings. Yes, interest is the prime cost that you pay on any small loan. Moreover, it is higher than the long-term loans. Therefore, paying less interest helps you save money. You can use this cash for some other life goals. Here are other benefits of cutting down on interest payments on a short-term loan:
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Reduces the total amount payable
By lowering the interest costs, you pay less than you ought to on a loan. It reduces the total amount (principal plus interest) costs that you must pay on the loan. For this, you must compare your options and fetch the lowest-interest loan.
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Grants the potential for strategic financial decisions
Having cash availability helps you deal with other important life concerns. For example,you can use the €1000 you saved on interest to pay for the utility bills. It prevents you from late payment penalties. Similarly, you can use the savings to counter any other personal or business engagement.
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Helps you get debt-free quickly
You don’t need to carry on the payments for years. Instead, you can get rid of the debt within 8-12 months. With low interest costs, you can easily budget for the payments. Planning helps you set direct debits and avoid missed payment penalties.
Which terms help you keep the interest costs low?
Now, let’s move on to the prime question- which terms may help you pay less interest on a small loan? The first aspect is the APR or Annual Percentage Rate. It is the cost of the loan that you pay annually. The higher the APR, the more interest you pay.
Therefore, compare your options to fetch the lowest APR. Use the calculator to understand the approximate APR you may get. It is different from the represented one. Here are other terms to check and fetch low interest on a short-term loan:
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Pre-payment facility
“Pre-payment” is the term that implies clearing dues before the loan term ends. Some loan providers grant one to individuals with low credit scores. Under this, you only pay interest up to the specific period for which you use the loan. You don’t need to pay for the entire term.
For example – you have a loan of €3000 with a repayment term of 1 year or 12 months at an interest rate of 8.9%. However, you decide to repay €800 instead of €262 as a monthly cost. Here is what your loan may look like:
| Previous agreement | (Amount in Euro) |
| Total amount payable | 3141 |
| Interest cost | 141 |
| Monthly Payment | 262 |
Here is what your new agreement may look like;
| New agreement | (Amount in Euro) |
| Total amount payable | 2775.69 |
| Prepayment savings | 365.31 |
| Reduction in interest | 262 |
| Monthly Payment | 242 |
Thus, you pay less interest cost, monthly instalment, and overall payment by overpaying. Check whether your loan provider allows one.
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Compare the guaranteed APR
Guaranteed APR is an APR that you get according to your financial circumstances. It may differ across the loan providers and borrowers. You may not get the same as the other borrower. However, you and the other borrower may get the same representative APR. It is generally mentioned in percentages like (49.9%). This means that 49% of individuals may get the representative rate. The loan provider decides on guaranteed APR after conducting basic checks.
On short-term loans, the interest is calculated daily. This means you may pay up to 0.8%interest per day on a loan. It never exceeds double the principal amount that you borrow. For example, if you borrow €100 for 30 days, you pay only €24 in interest costs. You don’t need to pay €200 in total.
You can even use a valid APR calculator to know your approximate liabilities. It also helps you fetch the lowest APR according to your needs.
For example- if you borrow €2500 for 12 months at an interest rate of 8%, your costs may look like this:
| costs | Amount in Euro |
| Estimated monthly payment | 217.47 |
| Number of payments | 12 |
| Total interest costs | 109.65 |
| Total costs | 2609.65 |
The lower the APR, the less interest you pay on the loan overall. You can also reduce the APR liabilities by borrowing less than what you need. Moreover, choosing a small repayment term on loans in Dublin automatically reduces the interest costs. Use the loan calculator to understand when you can comfortably clear the dues. Don’t take up an additional month unnecessarily to cover the loan payments. It leads to additional interest payments.
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Considera guarantor-based loan
Usually, you don’t need to provide a guarantor on a small loan. This is because the amount stays low and affordable for even low-earning individuals. However, if you lack any relevant income source but need a loan urgently, then this may help.
A guarantor is a known person that helps you reduce the interest costs on a loan. He provides his credit and earning status to reveal the affordability. Guarantors with healthy credit profiles may help you get low-interest loans instantly. It reduces the risk for the loan provider.
Bottom line
Thus, understanding certain loan-based terms helps you fetch better interest rates. It keeps you conscious while seeking a loan. You can compare better by basing these parameters. Always check for hidden fees and compare the loan costs, too. It may include an origination fee, completion fee, and interest rates. Identify whether you can pay off some debts. It may help you fetch better terms and interest on a short-term loan.
