6 tips for breaking the short-term loan cycle

While short term loans can be a life-saver in a pinch, some borrowers find themselves in a cycle of borrowing more to cover shortfalls left from paying back the previous loan.

Shameer Dada, President of C.A.I. Financial in Port Moody, says the company has seen this with some customers who come in more than once looking for a loan. In fact, in talking to repeat customers, he often finds they have loans with multiple other companies.

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In those cases, Dada says, there are things C.A.I. Financial can do to help.

The company will assess the equity in the customer’s collateral, and, if it’s sufficient, consolidate all the loans into a single payment.

“We do lower our interest rates considerably,” he says. “It’s part of how we’ve tried to help those people we’ve found are falling into that cycle.”

Other tips for avoiding the short term loan cycle, according to Dada, include:

1. Recognize the trap. Many people get trapped in a never-ending cycle of short-term loans. Unable to pay back the original loan they end up borrowing more, or paying a fee to renew the loan. The first step is being aware of what’s happening. The second is to break the cycle.   

2. Understand the true cost. Make sure you know up front how much interest you’re being charged, when the payment will be due and what your options are if you can’t pay on time.

3. Pay off the loan without borrowing to cover it. The most efficient way to stop the short-term loan cycle is to simply pay back the loan that you have without borrowing.

4. Cut back on non-essential expenses, like dining out. Raise extra money by selling items that you no longer use, working overtime or doing odd jobs. Or ask a trusted friend or family member to help out by lending you the money to pay off the loan.

5. Prioritize. If you have other outstanding loans or credit card debt, pay off the one with the highest interest rate first. Just make sure to continue to make minimum payments on the other loans.

6. Ask about a payment plan option. Most lenders will offer a payment plan to customers unable to pay the amount in full on time.

To find out more about short term loans from C.A.I. Financial, visit their website, call 604-492-3440 or email. You can also find C.A.I. Financial on Twitter and Facebook.

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