Have you ever heard about short term loan? What if you suddenly have an urgent need of cash and no one is ready to help you, what will you do in such a situation? I have a great option for you.
Today I am going to tell you about a short-term loan, which is helpful in solving your money problem in a few hours. This new loan option may prove to be better for you. Short term loan The loan is similar to a personal loan in a way, but the repayment period is much longer than a personal loan and it is easily and quickly available. Short term loan is easily obtained with very handy documents and for this one does not even have to go to the bank because this loan is given through online. This instant loan can solve your immediate cash crunch, making your life a lot easier.
What is a Short Term Loan?
Short-term loan Loans are given for a tenure of 1 year or less. This loan is approved within a few hours or within one to two days. Sudden expenses such as the cost of treatment for illness, sudden investment in business, or pre-marriage purchases, or any other major purchase, or purchase and sale of a property, all of these needs include this. Any type of loan can be taken. But in this type of loan, you have to be prepared to pay a higher interest rate than a personal loan.
What are the Types of Short Term Loans?
As we have understood, why do we need short term finance, there are various sources of short term finance. Each type of short term finance has different characteristics and can be used in different situations. Some of them are explained below:
Business Loan: This is the temporary time that allows the business to pay for the goods or services that they have purchased. It helps the business to manage their cash flow more efficiently and help them deal with their finance related issues. Trade credit is a good method of financing inventory which means the number of days the seller will be allowed before his payment becomes due. Business-loan is offered by the seller as an inducement to continue the business and hence does not cost anything.
Working Capital Loan: Short term loans can be obtained from banks and other financial institutions. Banks grant these loans on the basis of business, its working capital cycle, past track record etc. Once the loan is availed, these loans are either repaid in small installments or can be repaid in full at the end of the tenure. It depends on the terms of the loan. It is advisable to use these loans for financing fixed working capital needs. It is a good option for meeting temporary working capital needs.
Discounting Bills: It means arranging funds against submission of invoices whose payment is to be received in near future. Invoices receivable are discounted with banks, financial institutions or a third party. On submission of the bills, they will pay the discounted value of the bills and on the due date, they will collect the payment on behalf of the business.
Factoring: This is a similar arrangement of finance such as invoice discounting. It is debtor finance in which the business sells its accounts receivable to a third party we call the factor for less than the realizable value. This can happen with or without recourse of any kind, unlike invoice discounting which can only happen with recourse.
Business Line of Credit: Short term finance is the best solution for temporary working capital or urgent cash needs. In this type of financing, an amount is sanctioned by a bank or financial institution. Within the limit of this amount, the business can make the payment and continue to make deposits once the payment is received from the customers. It works like a revolving credit and the best part is that interest is charged only on the amount utilized and not on the amount taken. The business has the facility to deposit the unused amount to save the interest rate. In this way it becomes a very good option.
What is the Interest Rate in Short Term Loan?
Short term finance is available without any guarantee and within a few hours and also offers more convenience than a personal loan. Because of this, a higher interest rate has to be paid in it. The interest rate in short term finance can range from 12% to 22%. There is also a fee which you have to pay once. Processing fees may vary from company to company. Some companies may charge lower charges as compared to personal loan and the interest rate in personal loan is also work as compared to short term finance. You should choose wisely which loan you should take.
What is the Repayment Period of Short Term Loan?
Short term finance is easily available to you even for just 15 days and being short term, the repayment period of the loan will not exceed 6 months. On the contrary, you cannot repay the loan in full before the repayment tenure of the personal loan is at least 6 months.
What is the Eligibility for taking a Short Term Loan?
To get a short-term loan, it is necessary to follow the following criteria.
Age: Age plays an important role in knowing your eligibility and loan repayment capacity. Your age should be minimum 21 years and maximum 65 years for short term finance.
Profession: You must have a job or a business of your own.
Stable Income: Your eligibility is calculated on the basis of your income for availing any loan, so for short term finance you should have a source of income.
Benefits of Short Term loans?
Low interest rate: Since short term loans are to be repaid over a very short period of time, within a year, the total amount of interest cost will be minimal as compared to long term loans which take several years to pay off.
Online Process: There is no need for you to visit the bank for this loan, this loan is easily available from home through online.
Less Documents: The documents required for this are also very less. So everyone can easily take this loan.
Instant Loan: In short-term loans, the loan is approved in a day or two
Disadvantages of Short Term Loan?
Short-term loans are available for a tenure of one year or less which makes the monthly installments of the loan very high, resulting in higher chances of default in loan repayment and if this happens then your credit score can get bad. If you want to check your credit score then click here.
Short-term loans are very useful not only for business people but also for ordinary people. For business, it removes the problem of sudden money and also fulfills the need of money for any sudden major illness or any big purchase. You get a lot of facilities in a short term loan but the consequences of not paying the installment can be very dangerous as it will not only spoil the credit score but can also create financial burden and problem in day to day business operations. Therefore, take a loan after thinking carefully.