All about Short term loans:
Short term loans are the types of loans obtained to support temporary personal or business capital needs. It is a type of credit that involves a borrowed capital amount and interest that needs to be repaid at a given due date, which is usually within a year from availing a loan. A short-term loan is a valuable option, especially for small businesses or startups that are not yet eligible for a credit line from a bank. Not just business short term loans are also suitable for an individual who needs sudden, temporary financial help.
Characteristics of short term loans:
Short term loans are called short term because of the reason of how quick the loan needs to be paid off. In most cases, it must be paid off within 6 months to a year and a half duration. Any loan for a long term then is considered to be a medium-term or a long term loan.
The longer-term loans can last from just a year to 25 years, but a short-term loan doesn’t specify a payment schedule or a specific date. They allow the borrower to pay back the loan at their own time.
Types of short term loans:
Short term loans can be of different types, as given below
- Merchant cash advances: This type of short term loan is actually a cash advance but acts like a loan. As soon as the lender loans the amount needed by the borrower. The borrower makes the loan payments by allowing the lender to access the borrower’s credit facility.
- Lines of credit: A line of credit is much like using a business credit card. A credit limit is set, and the business can tap into the line of credit as required. It will make monthly payments against whatever is borrowed by the borrower. Therefore, monthly payments due will vary.
- Payday loans: Payday loans are emergency short term loans that are relatively easy to avail of. They are offered by high-speed lenders as well. The disadvantage is that the entire loan amount plus interest should be paid in one lump sum when the borrower’s bank account, using the continuous payment authority.
Advantages of short term loans:
- These loans need to be paid off in a year; there is a lower total interest payment. Compared to a long-term loan that takes a lot of years to mature, the interest paid on the short term loan is less.
- These loans are less risky than long-term loans because they have a shorter maturity date, the time taken by the lender underwriting to process the loan is shorter, so the borrower can obtain the funds more quickly.
- There are lifesavers for small businesses and individuals in need of funds and fewer credit scores to acquire as such loans are easy to meet.
Summary:
Short term loans are beneficial for both individuals as well as businesses. For businesses, they may offer a better way to deal with sudden cash flow issues. On the other hand, these funds help individuals to meet their sudden need for financial help.
Special Note: An individual must examine the whole EMI amount payable to the lender with the Personal loan EMI calculator.
