Short term loans are the loans that are usually obtained for supporting a temporary business or personal financial requirement. Being a credit type, they involve a borrowed amount along with an interest rate that you have to pay before a given date. Depending on the amount of the loan, the loan term for short term finance can vary from 1 month to 1 year. The loan amount for these loans is usually smaller, and they are available for start-ups and businesses who are not able to get a bank’s credit line. Individuals who are in a sudden, temporary financial crisis can also apply for these loans.
Types of Loans Available for Short Term
There are different types of short term loans offered by lenders. They are:
These are emergency loans that can be obtained easily. These are usually a small amount of loans that you can take for an emergency financial need, and pay it off on your salary day. The lender takes the amount from your bank account using the authority of continuous payment. Usually, these loans are offered even by high street money lenders, but they often carry quite heavy rates of interest.
This type of loan is offered against the account receivables of a business, in the form of an invoice that is yet not paid by the customer. The moneylender gives you the money and demands an interest rate as per the number of days or weeks the invoice stays outstanding. When the customer pays for the invoice, the lender interrupts the invoice payment, takes the charged interest, and returns the due amount to the borrower.
Merchant Cash Advance:
These work as short term loans, but in reality, they are cash advances. The lenders offer you the loan amount you demand, and you repay your loan by giving access to your credit facility to the lender. Every time your customer makes a purchase, a fixed amount of percentage is given to the lender until the loan amount is repaid completely.
Line of Credit:
This kind of loan is similar to using a corporate credit card. It has a set credit limit, and you can tap into the credit line as and when needed. Whatever amount you borrow, you have to make monthly installments against it. Due to this, the instalment that you pay every month varies as per the amount of credit line you have accessed so far. One of the biggest benefits of having this loan is that it usually has a lower rate of a percentage to be paid.
Online Instalment Loans:
Short term loans can be easily availed online, as the entire process from applying to getting approval is much easier and faster than conventional loans. You can get the approval within minutes, and the approved loan amount is transferred to your bank account within a few hours.
Benefits of Taking Short Term Loans Instead of Usual Loans
You get a whole lot of advantages when you take a loan only for a short period of time. These include:
Since the loan term of these loans is less; they usually have lower interest payments when added together.
Due to the shorter date of maturity for these loans, they are less risky in the eyes of the lenders, due to which they are easier to obtain.
Even if you have a low credit score, you can get these short term loans very easily, as their eligibility requirements are much easier to fulfil.
All-in-all, short term loans are extremely useful for individuals as well as for businesses. They can be a good way for resolving sudden issues in the cash flow and can serve as effective sources of funds in case of emergencies.