A personal loan with shorter terms, also known as a short term loan, offers borrowers lower interest rates and better terms when compared to payday loans. Depending on the type of short term loan, the monthly payments can be made in 3 month to 12 month installments. Borrowers are given more time to pay back a small dollar loan at a cheaper cost. This effective tool lets payday loan borrowers have more funding options that are more likely to improve a poor credit score.
In 2010, almost 6% of Americans had utilized a payday loan. These loans have extremely short terms, usually around 18 days and must be paid in one lump sum. Since the ordinary payday loan borrower gets 8 payday loans throughout a year, the conclusion is they use the new payday loan to repay the old one. For borrowers with bad credit who are already unable to access financing from mainstream banks, this dangerous debt cycle can further hurt their chances of restoring their credit. What if a payday loan didn't require the borrower to repay the balance by the next paycheck? Would this stop a borrower from having to take out additional loans? What if there was an alternative way to borrow cash quickly with slightly longer terms? More lenders are answering these questions and supplying the financial market with a higher quality small cash loan. By offering monthly installment plans, a short term loan is a cheaper and safer substitute that could stop the payday loan revolving door and offer better financial protection.