Planning your personal finances help you attain the goals you set and enables you to get the most out of your money. Loans are an essential part of good financial planning, they help fund big purchases, enable you to get a premium education and allow you to fulfill your family’s needs. But all your loans need to be aligned with your financial goals, it is critical to plan them well.
Short-term personal loans are available instantly for a short tenure. But sometimes, when you urgently need money to tide over a crisis – planning may not be possible. Short-term personal loans from banks or online personal loan apps may come in handy at such a time. Here’s all you need to know about short-term loans and their benefits.
How Does a Short-Term Loan Work?
Usually, when you avail of a loan, you can pay it back in a few years in easy monthly installments. However, short-term loans have to be repaid within one year. Some short-term loans are repayable within a month or a few weeks. Some of the best loan apps help you understand your eligibility based on your creditworthiness and offer you a loan tenure accordingly.
Here’s a look at how short-term loans work –
- You can apply for a short-term loan on an online loan app or an offline money lender.
- Lenders go through the applicant’s credit history and complete background verification. They may ask you o submit relevant documentation to evaluate your financial history.
- After verification and evaluation, the loan request is approved if the lender deems the applicant creditworthy. Short-term loans are processed quickly, and if your application is approved, you can expect to receive the money instantly.
- All the terms are communicated to applicants, and if they agree, the money is transferred to their bank account.
Types of Short-Term Loans
You may avail of many different types of short-term loans in an emergency. With the advent of instant loan apps in India, it is simple to find a short-term funding option that best suits your situation. Here’s a look at the most common types of short-term loans –
- Online Personal Loans Apps – Applying for a short-term loan on an online loan app is easy and quick. The entire process, from application to approval, is completed online.
- Lines of Credit – A credit line works similarly to a business credit card. A credit limit is decided, and the business can tap into the credit line whenever required. Monthly repayments may vary based on the amount used.
- Merchant Cash Advances – A merchant cash advance is a short-term loan facility wherein business owners get the loan they need. Then for repayment – each time a customer purchases from the merchant, a certain percentage of the sale is given to the lender.
- Payday Loans – Payday loans are short-term emergency loans – that are easy to obtain. Repayment, including the interest, is done in a lump sum from the borrower’s paycheck.
- Invoice Financing – Invoice financing uses a business’s invoices due to be paid by customers and loans the equivalent amount to the business. Whenever an invoice is paid, the lender gets the amount owed to him.
- Credit Card Loan – Based on your credit history, repayment capacity and credit limit, you can get a loan against the credit card you are using.
Benefits of Short-Term Loans
One of the most significant advantages of a short-term loan is that it bails you out of a financial crisis and helps you until you get your personal finances in order. But besides that, a short-term loan has various benefits that should be kept in mind. Here is a list of benefits of short-term loans –
- Quick Approval – In an emergency, getting the funds on time is crucial. Short-term loans are approved quickly, and the process requires minimum documentation. If you avail of a short-term loan from an instant loan app in India, the approval is even quicker.
- No Physical Interaction Required – The process is digitalised from end to end if you apply for a loan through an online personal loan app. Even during the pandemic, when it wasn’t possible to go to the bank, people could avail of short-term loans on loan apps.
- Competitive Interest Rate – Even if you urgently need financial support, it doesn’t mean you need to pay a significant interest rate. The personal loan market is highly competitive, and the interest rates are also reasonable.
- No Collateral Required – Personal loans are unsecured. It means that they don’t ask the borrower for collateral. It gives the borrower the freedom to take up a personal loan in an emergency, even if they don’t have collateral to give.
- Small Amounts & Small Payments – Availing of a loan through an online personal loan app allows you to choose the amount you need. There is no restriction on the amount of loan you avail of.
- Simple Documentation – Applying for a short-term loan is quick, easy and needs minimal documentation.
When you are in the middle of a financial crisis, whether for business or personal, short-term loans can help you fund your needs. It also helps you get the money quickly, in a short hassle-free process. Remember to maintain a good credit score and a solid financial history so that if you are ever in a cash crunch, you can easily find affordable options for short-term loans.
Shiv Nanda is a financial analyst who currently lives in Bangalore (refusing to acknowledge the name change) and works with MoneyTap, one of India’s best personal loan app. Shiv is a true finance geek, and his friends love that. They always rely on him for advice on their investment choices, budgeting skills, personal financial matters and when they want to get a loan. He has made it his life’s mission to help and educate people on various financial topics, so email him your questions at firstname.lastname@example.org.