HomePersonal FinanceWhen You Should Use a Short Term Loan

When You Should Use a Short Term Loan

A 2017 GOBankingRates survey broke some alarming news: over half of Americans have less than $1000 in a savings account, and almost half of the people who fall in this category don’t have anything in a savings account at all. With almost 7 out of every 10 Americans having somewhere between absolutely nothing and just $1,000 in savings, there’s reason to be concerned about the ability of many Americans to pay for emergencies.

If you’re one of these Americans who doesn’t have a savings account, it’s time to start one. I’m sure you’re fully aware that emergencies come up, and emergencies often come with a hefty price tag. I totally sympathize with the assumed reaction here, which is that you just don’t have extra money to save. However, if you don’t think you have money to stick in savings now, you certainly won’t have the (much larger sum of) money to cover an unexpected expense.

Getting Started with Savings

Starting to save doesn’t require hundreds of dollars, especially if committing to save is going to require some serious budgeting shifting for your family. Even starting with just $20 and adding $5 a week is a great way to start forming healthy saving habits.

Looking for small things to cut out of your budget and redirect those funds to savings is a favor to your future self. I promise that while cancelling Netflix or choosing to eat meatless meals 2 times a week to cut back on the grocery budget might feel like a huge sacrifice in the moment, the sacrifice will seem much smaller when you’re better prepared financially for an emergency.

Many people who save have one checking account and one savings account. The checking account is used for daily expenses, and the savings account is where they stick money back for anything that might come up – an emergency, a vacation, a medical bill, or a down payment on a new house to name a few uses.

Savings accounts can be opened at your local bank or credit union, or through an online bank. It’s worth looking into an online bank for savings as they often have much lower overhead and are able to offer significantly higher interest rates than traditional financial institutions.

If you don’t think you have much money to save, there are lots of savings challenges to help you find a little money to save here and there. Challenges range from saving $1 each week to match what number of the year that week is (first week of the year = save $1, last week of the year = save $52) to saving 1 cent for what day of the year it is (January 1st = save 1 cent, December 31st = save $3.65), among others. You can do this with actual currency, or set up auto transfers from your checking account to savings.

Multiple Savings Accounts

While saving money is always a great practice, saving all your money in one account can be problematic. Let’s say you spend your entire savings account taking a beach vacation. You get home and find that your car won’t start in the airport parking lot. You have to pay to get it towed, and you later get a $500 bill from the mechanic for a new starter. You just spent all your savings on margaritas on the beach, how are you going to pay for this?

Having multiple savings accounts, each designated for something different, can help you avoid siIf you need money either personally or professionally and don’t know what to do, it is best to analyze your situation to figure out the best course of action. Why did you run out of money? How much do you need to borrow? How long will it take you to pay it back? If the amount is a reasonable sum and you think you can pay it back in a short period of time, than a short term loan may be what you need. A short term loan is usually a loan that has a shorter pay back period. Loan amounts are not excessive and are also easier to get than standard loans. Since they are more accessible and easier to apply for than it can also get some people into trouble. Below are certain situations where a short term loan would be a good option.

Seasonal Business

Some businesses are seasonal. There are periods where the income can be high or low, but it usually predictable. For example, an ice cream store knows that the summer will be busier than the winter, and that is predictable. You can forecast your busy season if your business is seasonal. If you are low on cash to build your business but know that there are busier times ahead that will allow you to pay off the loan during your busier season, than a short term loan is smart for you.

Bad Credit

The problem with standard loans is that sometimes they are not easy to get because of bad credit. If you have difficulty getting loans because of your credit than a short term loan may be your best bet. A lot of times short term loans have more leniency towards bad credit but you do pay for that consideration. They are taking on the riskier borrowers.


You need to show that you have the potential to pay back your loan in the near future. Short term loans are based on projected future cash flow. History is key. If you are known to have a successful business but are having a tough time, than they can project you will be able to pay back their loan.

Emergency Repairs

If you are running a business and encounter emergency problems, than short term loans are good for you. Personally, if your car breaks down, your roof leaks, your hot water heater breaks, than a short term loan will be to your rescue when your monthly budget doesn’t allow the cash flow to help. Professionally, if a piece of equipment breaks or your store gets damaged than this loan product may be good for you. This is because you know you typically can function with your cash flows, just an unforeseen circumstance occurred that made it difficult to make ends meet.tuations like this. Different savings accounts might include an emergency account, a travel account, a Christmas account, a vehicle account, or a home improvement account.

When you have multiple savings accounts with specific designations, you won’t spend everything you’ve saved on one expense. Of course there will be times than an emergency or an opportunity costs more than what the most closely designated account can cover, so it’s nice to have other funds to pull from in these instances.

Splitting what you can save into multiple accounts may mean it takes longer to reach your savings goals. However, it’s worth it to be able to treat yourself or cover an expense without it affecting your other savings goals.


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