In layman’s terms a short term loan is a borrowed amount that has to be repaid within a year. Short term loans are comparatively easy to acquire as they are usually not affected by credit scores. Some advantages of a short term loan are-
- They require minimum paperwork.
- The transfer of funds is prompt.
- Since the borrowing period is shorter, the interest incurred with be less.
For businesses, a short term loan might be raised in case of cash flow shortages, unexpected emergencies, extra funding requirements during holiday seasons and unexpected demands.
For individuals, a short term loan can be useful in situations involving unexpected medical bills, repairs & house fix ups, emergency trips or funeral expenses.
The following are some of the most popular forms of short term loans-
1. Trade Credit
Trade credit is when you purchase a product or a service with the promise of paying for it on a later date. This is one of the cheapest forms of loans as it usually interest free. However, the repayment period is rather short being only 30 days.
2. Credit Cards
If you have a credit card, you can take a small loan against it. The eligibility for such loans commonly depends of your credit card history and credit limit. Depending on your bank and the amount borrowed, loans against credit cards are usually repayable within three to 24 months.
Even using a credit card itself is a form of a short term loan, as you are borrowing and repaying the loan monthly.
3. Cash Loans
A cash loan is a fixed amount of money borrowed at a fixed rate for a short period of time, which is repayable in installments. These installments are usually deducted from your account directly. Cash loans are a popular form of online loans that are easy to acquire without any collateral. These fast loans are one of the best options in case of emergencies when you need cash immediately, as funds are transferred within a working day.
It is important to understand that unlike trade credit, the repayment period is not flexible for cash loans. So only acquire it if you are confident about repaying it on time.
4. Bank Overdraft
Several banks allow business accounts to withdraw more cash than what is present in the account. This is known as bank overdraft. Bank overdraft are useful when there is an unforeseen requirement for cash. The repayment period for a bank overdraft is approximately 30 days.
5. Payday Loans
A payday loan is a viable option if you need a small amount within a few hours. All you require is a stable source of income and you can avail a payday loan.
As soon as you receive your next paycheck, the entire loan amount will be automatically deducted from it as a lump sum.
You should be prepared by adjusting your expenses for the upcoming months, as the loan amount will be deducted automatically and will leave you with a smaller income.
6. Personal Loans
Personal loans are one of the most popular forms of short term loans. It is a type of unsecured loan that is repayable in installments, which are tailored according to the borrower’s salary.
Since it is an unsecured loan, the interest rate is comparatively higher than what is charged for secured loans.
7. Title Loans
Title loans are offered against the borrower’s vehicles as a collateral. The borrower must own the title of the vehicle and shouldn’t have any other loan against it.
The repayment period is usually 30 days, and the failure to repay on time will allow the lender to take the vehicle.
8. Demand Loans
A demand loan is a rare form of loan, in which a lender can ask for repayment without any prior warning as there is no specified maturity date. Such loans are usually created between a pair of longtime acquaintances or business partners.
In case things go south for the borrower, the lender can immediately ask for repayment. For borrowers, it is a convenient and flexible form of borrowing.
9. Bridge Loans
Bridge loans are also called gap financing, as they help with short term liquidity needs and bridge the gap period before a long term loan. A bridge loan is commonly used for financing a down payment for purchasing a house.
These loans are offered at extortionate rate of interest and also require an asset collateral, such as debentures or equity.
A short-term loan will help with your short-term needs. So thoroughly research all the available alternatives to make an informed decision. Click here to learn more about online loans.