We are all told to set aside money for a rainy day. But many of us do not have the means to fund a substantial safety net. A serious illness, car repair, or an extended furlough can easily deplete a budget. But what can you do in the face of a crisis if you have middling or poor credit, and can’t qualify for a traditional bank loan? Fortunately, you don’t need good credit to secure a 6-month loan.
What are 6-month loans?
Usually, personal loan terms range from 12 to 60 months. However, borrowers must have fair to excellent credit to qualify for such loans. For borrowers with less-than-stellar credit, a 6-month loan can be a great option.
All you need is a valid checking account and proof of employment to borrow up to $5000 over a 6-month term. The lender will deposit the funds directly into your account, often on the same day that you apply.
With a 6-month loan, you’ll pay back your principal and interest in regular installments, usually set at once or twice a month. It’s important that the payments are realistic and affordable. Most lenders will work with you to schedule the payments on your payday and will set up automatic bill pay.
If you don’t have the credit to qualify for a typical personal loan and don’t have the savings to cover a crisis, these loans can be a life-saver.
What’s the catch with 6-month loans?
All of this convenience comes with significant risk. 6-month personal loans are usually intended for people with poor credit, so interest rates are very high, often with annual percentage rates (APRs) in the triple digits. As such, falling behind on your payments can have even more serious consequences than a regular personal loan. There can also be significant fees associated with these loans.
Which are the best 6-month loans?
If you’re looking for a 6-month loan, here is our top 3 list of 6-month loans:
Best 6-month loan for “low” rates: Regional Finance
Although these rates are not cheap, they are the lowest around for 6-month loans.
Best 6-month loan for larger amounts: NetCredit
NetCredit offers higher loan amounts, flexible term lengths, and competitive rates. The overall best 6-month lender.
Best 6-month loan for flexible eligibility requirements: Rise
Rise is available in more states than any other 6-month lenders we reviewed and has very flexible eligibility requirements.
Should you get a 6-month loan?
The answer depends on your personal circumstances. These are the pros and cons you should consider when determining which product is best for you.
Here is a list of the benefits and the drawbacks to consider when shopping for 6-month loans.
- Quick approval. You may receive funds as soon as the next business day.
- Convenience. You can apply from anywhere that you have an internet connection.
- Available even with bad credit. Many lenders don’t run credit checks for short-term loans.
- Automatic payments. Loan payments can usually be debited directly from your bank account. This can be very convenient if properly planned for.
- Boost your credit score. Responsible payment behavior can establish or improve your credit.
- High interest rates. You will pay much more in fees and charges than you would with a secured loan from a bank.
- Higher-than-average risk of scams. Shady lenders are out there, and they know that borrowers seeking fast cash are often desperate. Avoid being taken advantage of by doing your research and reading customer reviews.
- Shorter terms mean higher monthly payments, and less time to pay off your debt.
- More fees.
What distinguishes 6-month loans from other short-term loans?
Looking for a short-term loan, but not sure what options are available to you? Consider the following alternatives.
Payday loans, are short-term loans with high interest rates — usually for $500 or less — which are due on your next payday. Depending on which state you live in, you may apply for payday loans online or at storefronts.
Auto title loans are another type of short-term loan with high-interest rates that use your car’s title as security. You usually have to repay a car title loan within 30 days, although some lenders do offer longer terms.
3-month loans will usually lend you up to $5,000. These loans are a reasonable option if you can’t qualify for a personal loan. However, it can also be difficult to find a lender that offers a loan on such a short term.
12-month loans will typically provide loan amounts of $10,000 or more. These loans are also quick and flexible, but give you a little more time to pay it back than shorter-term loans.
24-month loans will usually lend you up to $35,000. These loans can help in an emergency, debt consolidation, or even a project for which you need funding.
All things being equal, a longer term makes your loan more expensive. However, longer-term loans often have lower interest rates for borrowers who have fair to excellent credit. But each loan product has its own risks, so it pays to do your research. SuperMoney’s loan comparison tools make it easy to compare lenders and see which product offers the best terms.
If the emergency funds can be obtained by any other means, then they should be considered first. Protect yourself and your finances by only getting a short-term loan if it is absolutely necessary and paying it back in full on or before the agreed date.