What Is A Short Term Loan?
A short term loan is a type of loan that is obtained to support a temporary personal or business capital need. As it is a type of credit, therefore it involves a borrowed capital amount and interest that has to be returned or paid back at a given due date, which is usually within a year from the date of getting the loan.
A short term loan is a valuable option, especially for small businesses or start-ups that are not yet eligible for a credit line from a bank. Short term loans are helpful not only for businesses but also for individuals who find themselves in a temporary or a sudden financial problem. Be it marriage expenditure or a travel expense, short-term personal loans always helps to meet short-term financial needs. Short-term personal loans can be used for any purpose are unsecured loans. Short term loans do not require any security or collateral. The short-term loan amount can range from Rs.50 thousand to Rs.300 thousand . The loan tenure can last from few months to 5 years.
Advantages Of Short Term Loans
There are various advantages in taking short term loans, which includes:
1. Shorter Time For Incurring Interest
Since short term loans need to be paid off within about a year, hence there are lower total interest payments. If we compared it to long term loans that take many years to mature, interest paid on short term loans is significantly lesser.
2. Quick Funding Time
Short term loans are less risky as compared to long term loans because it has a shorter maturity date and the time taken for a lender underwriting to process the loan is shorter. Therefore, the loan borrower can obtain the needed funds more quickly.
3. Easier To Acquire
Short term loans can turn out to be the lifesavers for smaller businesses or individuals who suffer from less than stellar credit scores because the requirements for such loans are generally easier to meet.
Disadvantage Of Short Term Loans
The main disadvantage of short term loans is that only a small loan amount is provided. Since the loan amount is returned sooner, therefore they usually involve small amounts so that the borrower won’t be burdened with large monthly payments.
Features Of Short-Term Personal Loans
Listed below are some of the features of short-term personal loans:
• Short term loan addresses an individual’s short-term financial needs.
• No collateral or security required for this type of personal loans.
• Documentation process is quick and easy for short-term personal loans.
• This type of loans can be used for serving any purpose like holiday expenditure, wedding expense, children’s school fees, house repair work, furnishing, travel expense, etc.
• The loan amount of short term loans ranges from Rs.50 thousands to Rs.300 thousand.
• These types of loans can also be transferred to another bank.
Factors To Consider While Choosing A Personal Loan
There are various factors to consider before choosing a personal loan in order to make sure that the borrower gets the best possible deal. Interest rates: Before choosing a bank, compare the personal loan interest rates offered by different banks, and opt for the one offering the minimum interest rate. Those factors are:
• Service charges: Processing fee, pre-payment charges, and documentation fee are some of the service charges that are added to the loan amount. Choose a bank that charges lesser fee for these services.
• Equated Monthly Installments: Before choosing an EMI option that offers the optimum EMI, compare the one offered by various banks.
• Loan tenure: The loan return period for short-term personal loans range from 1 year to 5 years. In some cases, it is less than a year.
• Loan issue time: The main feature of a short-term personal loan is to fulfill the immediate financial needs of the borrower. Most banks take 48 to 72 hours to process and issue loans.
Eligibility Criteria For Short-Term Personal Loans
To get a suitable short-term personal loan, the borrower has to meet the following eligibility criteria:
• The borrower must be an employee with salary or must be a self-employed professional.
• She/He must have regular income to pay back the loan on time.
• The borrower must have good credit history.
• Borrower’s age should be between 21 to 60 years.
Documents Required To Apply For A Short-Term Personal Loan
The documentation process in the case of personal loans is very quick, simple, and hassle-free, with very less paperwork, and is processed very quickly. The following documents are required for loan application:
• Identity proof.
• Permanent address proof.
• Bank transaction history from the last 6 months.
• Pay slips.
• Guarantor’s Identity and proof of address.
The Bottom Line
Short term loans are very helpful for both businesses and individuals. In case of businesses, they may offer a good way to resolve sudden cash flow issues and in case of individuals, such loans are an effective source of emergency funds.