If you are facing a financial emergency, like a medical crisis or your business needs extra funding immediately, then you might be worried about where you would arrange this extra required amount from. with the current scenario of financial services, there is no reason to worry, as most banks and other financial institutions offer loans to their clients depending upon the requirement. There are different types of short term loans offered based on the interest rates, the repayment tenures, whether collateral is required or not, and many other factors.
You can easily apply for and get these loans through some good options online as well.
If you are worried about being tied up with paying back the loan for a long period of time and that is what is stopping you from borrowing one, then you can find your solution in this article. A short-term loan is a loan that is named after the repayment period of this loan.
What are the benefits of this type of loan? What are short-term and long-term loans? What are the features of a short-term loan? How to get a short-term personal loan? If all these questions have flooded your mind, then you must read ahead.
In this article, we will be discussing short-term loans in detail. We will share with you everything you need to know about a short-term loan. From the application procedure, interest rates, and how these loans work to the pros and cons and how these loans are different from a long-term loan, this article will help you understand a short-term loan well enough to apply for one and avail of this facility for your needs.
What Is Loaney?
Most of us are not very sure about borrowing funds from a moneylender or banks because we are sure there must be some underlying conditions placed if the loan is being offered at a low-interest rate or for a shorter duration. Since you can now apply for loans online, you can also easily read through the terms and conditions and properly make sure that your money lending service is not going to scam you. If you are still not very sure, you can choose a reliable platform like Loaney. What is Loaney? How is it different? How can you be sure that Loaney is a trustworthy option?
Loaney is an online portal that offers short-term loans with a repayment tenure of up to 2 months to its clients. This platform offers personal loans at a low-interest rate and without submitting collateral, the client can avail of the required amount. The paperwork required is not much and you do not need to inform Loaney of the reason for borrowing the loan. The platform is 100% safe and there are no hidden charges involved for using Loaney. Loaney offers small loans. It offers up to Rs. 15,000 to its clients which can be availed of immediately after filling up an application form and submitting it. Your data is 100% secure with Loaney as it ensures client confidentiality.
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What Is a Short Term Loan?
As the name suggests, a short-term loan is a credit offered by banks and moneylenders which has a shorter repayment tenure. A short-term loan is an unsecured debt that implies there is no need to pledge collateral for the same. This loan is borrowed to meet the immediate financial requirement of the person or a business or to support a temporary capital need of the applicant. Unlike cash credit loans, this loan can be availed by new small businesses and startups as well. A short-term loan is offered for a period of about 1 to 2 years or a maximum of 5 years.
The following are a few key features of a short term loan:
- The rate of interest of a short-term loan is generally higher.
- The repayment schedule is flexible
- You can easily borrow a small amount as a short term loan
- The maturity period is short
- Unsecured debt offered without collateral
- Minimal paperwork and documentation requirement
- If repaid in time, this credit can help increase your CIBIL score in turn improving the credit report.
5 Types Of Short Term Loans & Their Features
Now that we are introduced to what a short-term loan is, let us take a look at the types of short-term loans and their individual features. Short-term loans are of a lot of types. In this article, we will be discussing the 5 most popular types of short-term loans in India. These include:
- Personal Loans: A personal loan is an unsecured debt that can be used for a variety of purposes like medical emergencies, foreign education, vacation, investing in a business, renovating your home, weddings, etc. this loan does not require much documentation and no guarantor is required. This loan is offered at low-interest rates and for a shorter repayment tenure.
- Trade Credit: A trade credit is an interest-free fund and one of the most affordable options. Trade credit is where you can pay for a purchase without any additional cost within the time period set by the lender. Mostly it takes 30 days.
- Demand Loans: This type of loan can be availed against some type of security or collateral pledged to the lender. Individuals or businesses can avail of this type of short-term loan. The loan tenure is fixed by the bank or lender and the amount can be repaid at any time within the set tenure with no prepayment charges.
- Bridge Loans: This type of short-term loan is known as Gap financing or interim financing as it can be availed of while you are waiting for another loan approval. As the name suggests, this type of loan bridges the gap between a short-term money requirement and a long-term loan.
- Bank Overdraft: Overdraft is a type of short term loan that is offered to businesses where the business can withdraw funds over and above their account balance. The business must have a current account and overdraft facility sanctioned.
Short Term Loans – Interest Rates & How It Works?
The interest rates that have to be paid by the borrower on a short-term loan are different for loans borrowed from banks and those borrowed from private money lenders online. The interest rates range from 9% to 9.70% on loans that are borrowed from banks. On the loans that are borrowed from private online leaders, the interest rates are around 1.5% to 3.5%.
Short-term loans are a solution for most individuals and businesses when they are in urgent need of funds. This type of loan is a savior as it gets approved faster and can be paid back on flexible terms.
How To Get A Short Term Loan?
A short term loan can be borrowed by an individual or business from banks, financial institutions, online moneylending platforms, and even suppliers. This loan can be availed online and offline as well. You can visit the website of the chosen service or make a call to the customer service department to know more and apply for this loan. The lender will then assess your credit reports and CIBIL scores, discuss the terms and conditions, make you duly fill up application forms and complete all the paperwork and then approve the amount. This amount can then be used to meet any urgent requirements.
Difference Between Short Term Loams & Long Term Loans
Before you make a final decision and apply for a short-term loan, let us compare the two types of loans and understand what is short-term and long-term loans.
The two types of loans, that is, the short term and long term loans differ from each other in the following aspects:
- Loan Amount: The loan amount of a long-term loan is higher because the amount will take a longer time period to be paid back while a smaller amount can be borrowed as a short-term loan.
- Interest Rates: The interest rates of a short term loan are higher compared to a long-term loan.
- Loan Approval Procedures: Since a short-term loan will be repaid in a short tenure, the loan approval procedure is faster.
- Duration of the Loan: A short-term loan can be extended to a maximum of 5 years in very rare cases, while a long-term loan can be as long as 10 to 20 years.
- Collateral: A collateral needs to be pledged while availing of a long-term loan, while no collateral is required for a short-term loan.
- Requirement for the Loan: A short-term loan is generally borrowed to meet the urgent expense requirements while a long-term loan is more for investment purposes.
Advantages & Disadvantages Of Getting A Short Term Loan
Before you are all set to apply for your loan, you must weigh the benefits and the disadvantages of the same. Let us compare these qualities of a short term loan.
Advantages:
- A small amount can be borrowed
- The approval procedure is fast
- Since the repayment duration is short, the interest amount to be paid is low
- Helps in improving credit report
- Unsecured debt
Disadvantages:
- The amount offered is low and might not be of help in case more funds are required
- High CIBIL score requirement
- High-interest rate
FAQs
1. What is a short term loan example?
A personal loan that can be used for a variety of purposes and can even be used in medical emergencies or to improve credit score is an example of a short-term loan.
2. How are short term loans calculated?
Short-term loans are calculated by the bank or moneylender depending on the crest score of the applicant and their past relations with the bank or lender.
3. What is a good interest rate for a short term loan?
A good interest rate for a short term loan is anywhere below 10%.