Short-Term Loans: Is It Good to Buy?

What Are Short-Term Loans?

A short-term loan is a type of loan obtained to manage a personal or business capital requirement. These types of loans are generally repaid within a year. A short term loan comes handy when an individual is not able to secure credit from the bank for a longer tenure.

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Short-Term Loans: Is it good to Buy?

Eligibility Criteria for Short-Term Loans:

The eligibility criteria you must meet to get a short term loan varies from one lender to the other. Listed below are some general eligibility criteria of short-term loans:

• The applicant must be a citizen of India
• Applicant must be above 18 years of age
• The applicant must have a savings bank account
• His monthly income should be above Rs 15,000
• The borrower must be employed in an MNC, private or public company or may be self-employed and should have a stable source of income.

Can We Get Short Term Loans with Low Credit Score?

Short-term loans can be availed with a low credit score. However, not all financial institutions provide loans with low credit score. Online loan aggregators sometimes provide loans with low credit score, but banks follow strict guidelines while sanctioning loans to customers.

SEE ALSO:Types of Personal Loans

Short-Term Loans Requires Minimal Paperwork:

Short term loans require minimal paperwork as most of the lenders offer online loans. The process is simple and hassle-free. Most of the lenders offer personal loan apps to enable quick processing of loans. All you need to provide is e-KYC documents and the e-mail ID of your office/workplace.

How are Short Term Loans Helpful?

Short term loans are helpful in the following ways:

• As short term loans are repaid within a year, total interest payments are low.
• Short term loans are less risky compared to long term loans because of a shorter maturity date.
• These loans come handy for small businesses and individuals during a cash crunch or an emergency financial need.

Listed Below are the Different Types of Short Term Loans:

Bridge Loans: These are the loans that are aimed at tackling immediate cash needs. These types of loans are also referred to as “gap-financing”. An individual applies for bridge loans when funds are required, but are not available. If you are waiting for a home loan to buy a property and need some quick money for the purpose of down payment, then bridge loans are an ideal option. The rate of interest and the processing fees are high in these type of loans compared to other loans.

Demand Loans: Demand loan is a rare form of loan that can be called for full repayment, without prior warning/notice to the borrower. Demand loans are availed to meet a financial emergency. Both banks and NBFCs offer demand loans against insurance policies and small savings certificates like FDs or NSCs. The amount of loan sanctioned depends on the maturity value of the collateral.

Short-Term Personal Loans: A short-term personal loan helps you meet urgent financial requirements and repay the amount over a short period, usually less than a year. The terms of these loans are similar to personal loans. The minimum amounts that can be availed under these loans are Rs 5,000. The rate of interest is generally higher than secured bank loans. The EMIs are calculated based on the borrower’s repayment capacity and the amount of loan sanctioned.

SEE ALSO: Get Personal Loans in Emergency Situations

Key Points to Know While Buying Short Term Loans

Loan Tenure:

Short-term loans as the name suggests are availed for a very short period of time. Short-term loans are easily approved and can be repaid within a short tenure. This helps the individual fund emergency expenses or big-ticket purchases. The tenure of these loans is generally 1 month to 12 months

Loan Amount:

A Short-term loan is availed by borrowers to meet short term needs like paying hospitalization bills, family obligations or an unplanned trip. An individual can avail a minimum amount of Rs 5,000 and a maximum amount of Rs 3 lakhs. You can decide the quantum of loan based on requirements.

Interest Rates:

The interest is calculated keeping in mind the loan amount and so the outflow of cash towards repaying the principal along with the interest is much lower in case of a short-term loan. The rates of interest vary across lenders. However, the rates are higher than normal bank loans.

Loan Issue Time:

Short term loans are generally disbursed more quickly than most other loans, and you do not need extensive paperwork for the same. You do not need to give collateral or security.

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