Short term loans are generally small and unsecured. They are sometimes referred to as payday loans because they are seen as a payday advance, and their eligibility is based on previous or current work history and payroll. These types of cash loans are generally used by people who are of a lower social class and need fast cash right away. Even though payday loans are good for getting money that someone may need immediately, they come with a variety of consequences if they are not paid off in time.
A verification of employment or other type of income is usually needed to get short term loans. This can include either a bank statement or a pay stub in most cases. A borrower can find a lender in person or get an online payday loan. Once given the loan, the borrower has a certain amount of time to pay it back with interest. Many times a borrower will actually write a check to the lender when the loan is given. The check will be dated as the deadline of when the loan needs to be paid back, which is typically the next payday of the borrower. If the time comes when the lender tries to cash the check and it bounces, that is when problems start to arise.
If a borrower writes a check that ends up bouncing, this demerit will become knowledge to consumer reporting agencies. This in turn means a possible decrease in credit score, inability to get a low interest loan, or other denial for credit opportunities. Even if a borrower did not write a post dated check at the time of receiving the loan but he or she still does not have enough funds to pay the loan back on time, then the loan will roll over with added interest and other fees. While this does delay having to pay back the loan, the added interest and fees will build quickly.
It is not all bad, however, if the borrower is able to pay off the loan in time. Some people may need to pay their rent or buy groceries before their next payday, so short term loans are particularly helpful in these kinds of situations. Whether they are online loans or loans received in person, it is always important to pay them off in time to avoid further debt.