Short-term finances are offered by lenders to the borrowers for short period to meet their emergency needs. For instance, if you have taken loan from a financial institution but not able to pay the debt in time, then you will have to pay the penalty burdened on you! To prevent this situation, you many take a short-term loan from a private lender, government or private bank etc.
When you take this short-term loan to meet your emergency needs, you may fall in the trap of these lenders. A private lender may cheat you, would take advantage of your troubles, and thus, would charge a very high interest rate, fess and penalty. So, beware of falling in the trap of such dubious lenders!
Short-term Finances and High Interest Rates
Whenever you take short-term finances from any source, whether the source is authentic such as, government banks or may be unauthentic such as, private lenders and private financial institutions, you are charged a very high interest rate on the loan amount. The reason is that if you are taking short-term loan, the lender is short of time collecting all your identity proofs, and assessing your assets and liabilities. Moreover, the loans are generally not secured by any lien on your assets. Hence, the loan is an unsecured loan. Thus, interest rates are high on these short-term loans.
Why you need to take Short-term Loan?
The answer to this question can be explained easily with an example. Suppose that you have gone for shopping unplanned, resulting into spending more than your credit card’s entire amount. The excess amount spent becomes a short-term loan for you. Now, you have to pay interest on the borrowed amount that you had taken in emergency. The interest rate on the money borrowed on the credit card will be very high. Therefore, customers, proceed for shopping in a planned way! Allocate your monthly salary to the different needs based on your priorities. If you have to pay on borrowed money, first, keep that amount aside and then allocate the remaining salary. If you are falling short of meeting any of your obligations because of the borrowed money, avoid meeting that obligation that comes last among your priorities, and without which you can go smooth over the whole month!
The bottom line is that the worst time to borrow money is during an emergency. You must have heard “prevention is better than cure”… Therefore, instead of wincing at the memory of paying a very high interest rate on the short-term debt, prevent this eventuality! Let this situation not be faced. Assess your incomes and plan your expenses before you begin to spend money!