90-Day Short-Term Loans
Ninety-day short-term loans are typically for consumers who have an unexpected need for immediate cash before their next paycheck--or before they receive their tax refund, job bonus or annuity payment. The approval process is usually quick, and the entire loan is usually paid off in one payment. Even though these loans are most often taken out by consumers for payday loans, small businesses also acquire short-term loans to help boost them during start-up periods.
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Function
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Ninety-day short-term loans provide quick cash without going through the lengthy process of applying for a regular loan. A person may have a sudden health emergency or need immediate car or home repairs. He may not be able to wait until his next paycheck or the days it may take to be approved for a loan. A short-term loan eliminates this waiting period and usually has immediate approval and payout. Consumers aren't the only ones who can apply for this type of loan; some small businesses apply for 90-day loans to help them finance a start-up period.
Benefits
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In addition to the little wait time, these loans have many benefits. Since they're only 90 days, there's no worry about an extensive period to pay it off. The entire loan is typically paid off in a single payment--including both the principal and interest--but these loans allow partial payments before the maturity date. Some short-term loans (particularly payday loans) even offer automatic withdrawals from a checking account, such as when the next paycheck arrives. As an added bonus, the interest rates will rarely fluctuate during the 90-day period, so there is little worry about paying more than originally anticipated.
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Types
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These loans can be obtained via a number of methods. The most common is the payday loan, in which consumers apply for a small loan and pay it off with their next paycheck. Banks also offer short-term loans, usually as lines of credit. Some home equity financing options offer short-term loans as lines of credit as well. However, very few are offered as 90-day notes, and the ones that are have substantially higher interest rates than any other short-term loan.
Warning
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Because these loans are for such a short period, the interest rates are far higher than a regular loan would require. The maturity date can also be extended, but for an extra charge--and sometimes with higher payments.
Short-term loans should only be taken out when funding is guaranteed for repayment, such as a paycheck or an increase in revenue. For this reason, these loans should be carefully planned to ensure they will be repaid satisfactorily and credit ratings won't be compromised. If there is any chance of a financial risk, whether it is a drop in revenue or potential job loss, short-term loans should not be considered.
Considerations
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Only those who expect a lump-sum payment in the future, such as a tax refund, paycheck, inheritance, bonus or sharp revenue increase, should consider this type of loan. But just in case something happens to the expected cash flow, it's a good idea to set aside some of the cash from the loan to help make partial payments or the final payment if needed. Also check to make sure that the loan can be extended for another 30 days. In the case of small businesses, keep enough cash on hand at all times for monthly partial payments in case revenues do not increase as anticipated.
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