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A short term loan can really present itself as a light at the end of a tunnel to those who are struggling to borrow some money but also in need for some quick cash because a it is known for their relaxed documentation and ease of getting the money.

Hassled Renewals:

Sometimes some extra time is required to pay off a payday loan, and in those situations, the lenders renews the contracts on his terms making it more difficult for the borrowers. But the borrowers in any case remains powerless while this renewal of the new repayment plan and has to agree to it although there are chances that with the debts getting accumulated the person or even a small businessman can get in the perils of bankruptcy.

Loss Of Possessions:

You can keep your car as a collateral for a short term title loan in a hypothetical situation but it should be kept in mind that the lender has legal rights to take over the possession of that car should you default on the payment of the loan. According to CFPB, when a lender takes over the possession of your asset, the car in this case, you can’t drive yourself to work, which will increase your expenses and will ultimately affect you while repaying the loan. They also released a stat which said that approximately 22% of auto loan installments get defaulted and then lenders takes over the possession of approx. 8% of those cars. Again, in the case of a pawn loan, even if you risk losing the collateral, you can still walk away from it pretending that nothing has happened. So pawn loans are always considered as a safer alternative than the high stakes short term loans.

Risk Of Damaging Reputation:

Investors may shy off from providing your company any short term loans if your company has financial woes previously or if they find it to be extremely reliable on such loans. The factors like the assets of the company always lying as a collateral often signifies that the business is on the edge of falling down and so in order to successfully on board the investors to invest, you need to show them that the business they are planning to put money is indeed financially sustainable and stable. Apart from that, the procedures of dealing with the short term loans affects the financial security if there is a chance of opting for a long term loan and any defaults while paying them back puts a stain on the credit score and makes it even more difficult to get a borrowing from any reputable institutions dealing with lending business.

Refrain From Digging Too Deep:

Most people thinks about getting short term personal loans to help themselves to pay unforeseen expenses like car repair, hospital or medical expenses or for a business purpose. But it is advisable to go for such short term options only if you are confident enough to pay it back on time and as quickly as possible as these kind of loans comes with an exorbitant interest rate which will result in putting you in more debts than what you had before. So even if you sometime fall in such situations which demands some quick cash its always justified to explore other options before jumping on short term personal loans because it’s totally unwise to get one without being entirely sure of paying it by its repayment terms.

Less Amount Of Money:

Traditional loans are usually much bigger than short term loans and the amount you are intending to borrow must be trivial enough so that you are sure of paying it off realistically within a few months’ or years’ time frame. So the purpose of borrowing it can be to cover some minor gaps in the ledgers, but taking it for replenishing your business inventories or for the production of something before deadlines can increase the risk factor exponentially.

Risking Bank Accounts:

Short term loans affect the financial security of an individual or a company like the fall of a single domino block. If one block falls down it crumbles the entire chain one by one. It not only lies as a trap in front of the borrower threatening his financial security but it has its other devastating effects that are much more far reaching which engulfs the whole life of the borrower. In order to get a payday loan, you must hold a bank account and the lenders takes access of the bank accounts to withdraw their payments usually through a pre dated cheque which they take so that they can encash if not paid. This leads to overdrafts, cheques getting bounced and ultimately the accounts getting closed, all of which doing one common thing, doing a major damage on your credit score and if worst case situation arises, the borrowers ends up announcing bankruptcy.

So it can be said that though short term loans seem tempting to squeeze in a quick cash inflow but the undermining risks associated with it demands that you should do proper research before opting one.


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