A short term loan is a type of loan that is obtained to support a temporary personal or business capital need. As it is a type of credit, it involves a borrowed capital amount and interest that needs to be returned or paid back at a given due date, which is usually within a year from getting the loan.
A short term loan is a valuable option, especially for small businesses or start-ups that are not yet eligible for a credit line from a bank.
Short term loans are suitable not only for businesses but also for individuals who find themselves in a temporary, sudden financial problem.
Short term loans come in various forms, as listed below:
This type of short term loan is actually a cash advance but one that still operates like a loan. As such, 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. Each time a purchase by a customer of the borrower is made, a certain percentage of the sale is taken by the lender.
A line of credit is much like using a business credit card. A credit limit is set and the business is able to tap into the line of credit as needed. It makes monthly installment payments against whatever amount has been borrowed. Therefore, monthly payments due will vary in accordance with how much of the line of credit has been accessed. One advantage of lines of credit over business credit cards is that the former typically charges a lower Annual Percentage Rates (APRs).
Payday loans are emergency short term loans that are relatively easy to obtain. Even high street lenders offer them. The drawback is that the entire loan amount, plus interest, must be paid in one lump sum when the borrower's payday arrives. Repayments are typically done by the lender taking out the amount from the borrower's bank account, using the continuous payment authority.
It is also relatively easy to get a short term loan where everything is done online - from application to approval. Within minutes from getting the loan approval, the money is wired to the borrower's bank account.
There are many advantages in taking short term loans, including:
As short term loans need to be paid off within about a year, there are lower total interest payments. Compared to long term loans that take many years to mature, interest paid on short term loans is significantly less.
Short term loans are less risky compared to long term loans because of a shorter maturity date. As such, the time it takes for a lender underwriting to process the loan is shorter. Thus, the borrower can obtain the needed funds more quickly.
Short term loans are the lifesavers of smaller businesses or individuals who suffer from less than stellar credit scores. The requirements for such loans are generally easier to meet.
There are a few popular short-term loans that are offered by lenders in the country. You can avail any one of these loans if you require short-term funds for personal or business-related needs. Given that these loans have a maximum tenure of 1 year, you should ensure that you have the required funds to repay the loan within this term.
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Below is the general eligibility criteria that you will need to fulfill to get a short-term loan:
The documents that you will need to submit when applying for a short-term loan are as follows:
Finway allow prospective borrowers to apply for short-term loans through online channels. Listed below are the steps that you will need to follow to apply for a short-term loan in India:
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