Short Term Loans

Financial institutions typically grant short-term loans, lasting between one and two years. They are usually unsecured, which means you can use them without putting up security in the form of collateral. The term "short-term" is used to describe loans that must be repaid in full within 6 to 18 months, notwithstanding the fact that funds can be extended swiftly.

The simplicity of obtaining a short-term loan sets them apart from other conventional ones available on the market. Numerous short-term loan providers in India provide you with the money you require to cover any big or small financial obligations.

How does it work?

When consumers need money right away, a short-term loan can come to their rescue. For instance, if all of a company's debtors are delaying payments, the company cannot fund its daily orders. For firms to pay their ongoing expenses, banks, credit unions, and other financial organizations offer various short-term financing services.

These loans are available in a variety of forms and sizes. Borrowers accept online or in-person branch applications for short-term loans. The lender evaluates the borrower's creditworthiness, explains the conditions, completes the paperwork, and, after approval, releases the funds.

Advantages of short-term loans

• Easy availability: Short-term loans typically have more lenient lending requirements because the loan amounts are constrained, which makes it simpler to get accepted. Timelines for funding and approval are also shorter.
• Shorter interest accrual period: Short-term loans have lower total interest payments because they must be repaid in less than one or two years. The amount of interest paid is substantially lower than with long-term loans.
• Rapid funding period: The shorter tenure of these loans makes them less hazardous than long-term loans. The likelihood that a borrower won't be able to repay a debt in a timely manner decreases. As a result, it takes less time for a lender to process the loan. As a result, the borrower can get the money more quickly.

Disadvantages of short-term loans

• Amount borrowed: The permissible amount to be borrowed in the form of a short-term loan is typically less. You cannot use it to fulfil any significant financial requirement.
• The total cost of the interest rate: The total cost of the interest rate is one of the biggest drawbacks of short-term loans. Lenders can charge higher working capital loan rates because the loan period is substantially shorter than other loans, offsetting the additional risk. Additionally, short-term loans could turn into debt traps if you can't keep up with your loan repayment schedule. If you are unable to make your payments on time, you might be compelled to refinance the loan repeatedly, which would ultimately lengthen the repayment period and result in more interest.

Types of short-term loans

1. Cash advances from merchants

This kind of short-term loan functions like a cash advance, even though it is essentially a loan. Lenders provide loans in the amounts requested by borrowers. The borrower makes loan instalments by granting the lender access to the borrower's credit facility. Until the loan is repaid, the lender retains a predetermined portion of the proceeds from each purchase made by a borrowing client.

2. Credit lines

Using a line of credit is comparable to using a company credit card. The line of credit has a predetermined credit limit and can be drawn upon by the company as needed. It pays back the sum that was borrowed in instalments every month.

The amount of the line of credit that has been obtained determines the monthly payments that are due. The fact that lines of credit frequently have lower APRs than company credit cards is one benefit of using them.

3. Payday loans

Payday loans are short-term, emergency loans that are relatively simple to get. High street lenders also provide them. The disadvantage is that when the borrower's payday comes around, the entire loan amount, plus interest, must be paid in full. Repayments are normally made by the lender using the continuous payment authority to withdraw the appropriate amount from the borrower's bank account. Typically, payday loans have quite high-interest rates.

4. Internet-based Loans

Additionally, obtaining a short-term loan is rather simple when everything is done online, from application to approval. The funds are wired to the borrower's bank account shortly after the loan is approved.

5. Finance for invoices

Accounts receivable, or invoices that customers have not yet paid, are used in this sort of borrowing. Based on the number of weeks that invoices are past due, the lender lends the money and assesses interest. When an invoice is paid, the lender will stop paying the invoice and deduct the interest from the loan before giving the borrower the money that is owed to the company.

Also Read- Mini Personal Loan

Eligibility of Short-Term Loans

There are requirements that have got to be met to apply for a short-term loan. These are as follows:

• Applicant must be an Indian citizen

• Must be an employee or freelancer

• The person should fall within the age range of 21 to 60 years

• Should earn a minimum of Rs. 15,000 annually. A minimum income of Rs. 12,000 is additionally permitted in specific circumstances.

• It is advisable to verify with your short-term loan provider what are their qualifying requirements for short-term loans as these can vary from lender to lender.
 

Required documentation for short-term loans

In order to get the loan approved, an individual must supply a few fundamental documents. These include:

• Proof of identification
• Proof of address (passport, driver's license, voter ID, telephone bill, or electricity bill)
• Current three-month statement (where salary is credited)
• Last three months' worth of pay stubs
• 1 photo of the dimensions of a passport
• It is best to test with your lender to see what documentation is needed for their short-term loans, as these requirements can differ from lender to lender.
   

How to apply for a short-term loan?

The borrower can access the lender's website directly or download their app, attend the loan section, choose short-term loans from the available loans, and then click "apply." The customer can next complete the application process by entering his or her contact and personal information. The required paperwork must be submitted online, including identity, address, and income proof.

Conclusion

Short-term loans are so named because of the short tenure involved in which the borrower must pay back the entire amount along with interest. While short-term loans come in handy in times of need, it is important to be aware of all the terms and conditions involved with the loan. Not doing so can land you in financial trouble, and you may not be able to manage your loan well. Therefore, assess your needs and options available in the market, compare all the benefits and drawbacks and then make your choice. You can also get in touch with the short-term loan provider to clear all your doubts.