Short-term loans can come in handy in an emergency, whether it’s an unforeseen medical bill, home repairs, fixing a vehicle or filling the gap after a job loss. But with the convenience of short-term loans, it’s easy to fall into a cycle of debt and a potential financial pitfall. Here are some ways to use short-term loans without making them a long-term problem:

1. Understand the True Cost
Short-term loans often come with higher interest rates and fees compared to traditional loans. Before you sign the deal, diligently calculate the total repayment amount with the interest, including any late fees or penalties. This will help you understand the real cost of borrowing.

2. Borrow Only What You Need
It can be tempting to take a higher amount “just in case,” but remember, you’re paying interest on every rupee borrowed, plus some more. Curb your loan to the minimum necessary amount.

3. Have a Repayment Plan
Don’t take a loan without a solid plan to repay it on time. Budget your next few paychecks to ensure you can cover the EMI without missing essentials like rent, utilities or groceries. Set reminders or automate payments to avoid late fees.

4. Avoid Rolling Over or Renewing Loans
Rolling over a short-term loan means extending its duration, usually at an additional cost. This can lead to paying more in interest than the original loan amount. If you find yourself needing to renew a loan, it might be time to reassess your overall finances.

5. Use Loans as a Bridge, Not a Crutch
Short-term loans are designed for emergencies, not ongoing expenses. If you begin to rely on them month after month, consider seeking financial counseling to get your budget back on track or ask a family member or friend for an intervention. Talk to someone you trust who can offer a helping hand.

With a responsible and prudent repayment strategy, short-term loans can offer quick and much-needed relief. But like any financial tool, their power lies in how smartly you use them. Always borrow with caution and clarity, and never as a safety net.

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Disclaimer: The article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of The South Indian Bank Ltd. or its employees. The South Indian Bank Ltd and/or the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial/non-financial decisions based on the contents and information’s in the blog article. Please consult your financial advisor or the respective field expert before making any decisions.