What are short-term loans?
As term short-term loan suggests, it’s a kind of loan provided to an individual for a short span that generally ranges from one month to a year. Short-term loans are usually unsecured, which means that the borrower does not have to provide any security or collateral for the loan amount. Short-term loans are also known as short-term installments or short-term finance. These loans are beneficial for individuals who cannot get loans for a longer tenure from a bank or a lender due to various reasons.
Features of Short Term Loan
- The annual percentage rate (APR) or the interest rates are generally set high as a short repayment period limits lenders from making sufficient profits.
- Moreover, lenders impose a high-interest rate to recoup the potential default loss as these loans are often unsecured.
- As short-term loans are lent without asking for a guarantee, they require borrowers to have a good credit score to secure their creditworthiness for timely payments.
- Also, the borrowed amount is usually small as compared to other loans.
- Both the principal and the interest need to be repaid in full within the term of the loan.
Reasons to apply for a Short-Term Loan
Flexible in nature
Short-term loans are multi-utility loans. You can also borrow money for not-so-urgent personal expenses. It may be from buying a gadget to paying your medical bills, from planning a vacation to financing your education.
No security required
Short-Term Loans are generally unsecured. There is no need to provide any collateral or asset in trade for the loan amount. This becomes profitable for the customers who cannot offer any collateral as security.
The paperwork and documentation required for a short-term loan are very minimum. Making the entire process swift and smooth for the customer as the documentation can be performed effortlessly.
These loans generally have quicker disbursals than most the other long-term loans. As the loan amount is small, documentation is minimum, so the disbursal takes less time.
Short-term loans can be a simple aid to address your immediate money needs. They begin at just Rs.2,000 and can extend up to Rs.3,00,000. The customer can choose the loan amount based on their needs.
Quick funding time
These loans are recognized as less unsafe if compared to long-term loans because of a shorter maturity date. The borrower is liable to repay a loan and is less likely to change significantly over a short frame of time. Thus, the borrower can obtain the required finance more swiftly.
Point to remember before applying for a short-term loan
Before applying for a short-term loan one of the essential elements you should examine is the annual percentage rate (APR), which directly affects how much you’ll wind up paying back for the loan, as it is unlikely you’ll get a prime rate with a short-term loan. Other elements that are essential to focus on include the fees charged by origination and other applicable charges, late payment fines, and refinancing options.
Short-term loans are to resolve the cash requirements of the borrowers. One should opt for short-term loans for boosting cash flows in the short run. Before taking any short-term loan, always remember to check out the fees and the interest rate, and always be positive to pay the loan back on time.