Published on December 9th, 2019 | by Sunit Nandi0
Finance – Everything You Need to Know About Short Term Loans
In times of financial difficulties, we mostly rely on our friends and relatives to help us out if needed. Unfortunately, sometimes, we find the people we trust are themselves financially burdened. Such a situation leaves us standing alone in the face of financial challenges. If you are dealing with such a situation, it makes sense to consider taking when you should be applying for short term loans.
What Are Short Term Loans?
Short term loans are personal loans that must be repaid within a short duration. In most cases, lenders require borrowers to return the loan amount within a year or less. Depending on the type of loan, the borrower may even be required to repay the loan amount within a few weeks. Applying for a short term loan is easy. To qualify for a short term loan, the borrower must make an application with a storefront or an online lender. The lender then devotes some time to studying and evaluating the borrower’s financial history. If the lender approves of a borrower’s financial history, an offer is extended to the borrower. This offer mentions the loan amount, interest rate, and duration of the loan. If both the lender and borrower agree on the terms and conditions mentioned in the offer, the loan is approved. Getting a short-term loan is an easy process; lenders do not usually take more than 24 hours to decide on a loan application, and once approved, the money will reflect in your account within twenty hours of approval.
Is It a Good Idea to Opt for Short Term Loans?
If you are planning on keeping the money you are borrowing for a long duration, short term loans aren’t a good idea. However, if you need fast cash and will be able to pay back the lender soon, short term loans are an ideal choice. To better answer your question, let us look at the benefits and drawbacks associated with short term loans.
Benefits of Short Term Loans
Here are some of the benefits associated with short term loans.
1. Short term loans do not demand collateral
When borrowers make an application for a long term loan, they are, in most cases, required to produce insurance. Generally, a house, jewelry, or any other tangible asset, serve as collaterals. Thus, with long-term loans, there is always some risk of losing your valuable assets. The best thing about short-term loans is that in the case of these loans, the borrower isn’t asked to produce collateral. Thus, borrowers get their money without risking any of their assets.
2. They have a low cost of capital
Borrowers may be able to get long term personal loans at lower interest rates. However, since the duration of these loans is longer, the interest accumulated in the end is much higher. On the other hand, since short term loans are loans sanctioned for a short period, the interest accrued on these loans is much lesser when compared to long term loans.
3. They are the ideal choice when you need cash quickly
It takes only a few hours to get a small term loan approved. Thus, if you need money fast, these loan types are the ideal choice.
4. People with bad credit can avail small term loans
If you have bad credit, do not worry, you may still be able to get a short term loan. Most lenders sanction a short term loan to people with bad credit as long as they can produce a solid proof of regular income.
5. Short term loans offer flexibility
While this is not a normal, many short term lenders agree to work with a borrower to reach an offer that is suitable to both parties.
6. Small term loans do not become long term liabilities
The best thing about short term loans is that they do not become long-term liabilities. One can use them to raise the money they need, return the money within a year, and move on.
Drawbacks of Short Term Loans
There are two primary drawbacks of short term loans
1. They carry high rate of interest
In comparison to long term loans, short term loans generally demand a higher rate of interest. Thus, it is a good idea to repay short term loans as soon as possible.
2. They are not the ideal long term solution to your financial woes
Short term loans are useful when you need fast cash. However, you must take a short term loan only if you can pay it back in time. In the case a borrower isn’t able to pay back the loan amount within the designated period, the loan incurs high late fees and other charges.
The Final Word
Before you apply for a short term loan, ask yourself some critical questions: how much money do you need? How fast do you need this money? By when do you plan to repay the loan amount? The answers to these questions will allow you to make the right decision regarding whether or not you need a small term loan.