Short-Term Loans: Definition

A short-term loan is a loan that the borrower needs to pay back, along with interest, in a relatively short period, usually in a year. The borrower returns the amount of the loan to the lender over the course of months rather than years.

Short-Term Loans: Requirements

If you are in urgent need of funds to finance a purchase, you can easily apply for a loan either online or with a bank or credit union.

You can apply for a loan if you are stuck in a situation where you need financial aid, such as for your family needs, work on your home, or your existing business.

The requirements for applying for a loan are:

  • The borrower should be 18 years or above
  • Income certificate
  • Valid email address and phone number
  • Should not be bankrupt

Although these are some of the requirements that you may need to fulfill before applying for a loan, you don’t need to have collateral while applying for a loan. This is the most attractive point about short-term loans.

Short-Term Loans: Benefits

There are many benefits associated with short-term loans. So, let’s discuss them to help you understand how beneficial these loans can be.

The sooner you have to return the loan, the quicker you can receive them. Yes, this is the major benefit that a borrower receives from short-term loans.

If you are in urgent need of money, this is beneficial because the loan may be approved in a shorter period. The loan lending requirements are also minimal because payday and short-term loans are limited. Therefore, these loans are quickly approved.

Depending on the lender, some short-term loans may be approved in a day or even within a few hours.

Another advantage is that short-term loans typically offer possibilities for lower interest rates. The quicker you pay back the loan, the lower the interest rate will be. Therefore, you should always try to repay your short-term loans as quickly as possible.

With short-term loans, you also receive aid in enhancing your credit rating. As you are applying for a short-term loan, you must be confident enough to repay it in the required timeframe. Hence, users of short-term loans often gain lines of credit.

The most attractive and beneficial feature of short-term loans is that they offer flexibility and convenience. As discussed above, short-term loans are usually quickly approved because they are flexible and easy to apply.

Many lenders run websites that you can visit directly to apply for a loan quickly. Given that you have to repay the loan within a short period, the stress associated with repaying it will not last for long!

Summary

So, these are all the benefits that short-term loans offer. If you’re in urgent need of money, what are you waiting for? Go and apply for the loan to derive its benefits.

With the availability of short-term loans, you shouldn’t have to worry about funds for financing new projects, fulfilling your houseful needs, or anything else. You can simply apply for a loan and repay it as soon as you earn enough profit.

Frequently Asked Questions

What is a short-term loan?

A short-term loan is a type of unsecured loan that you can take out for a predetermined period, usually up to 12 months. The borrower has to repay the full amount, along with interests and fees at the end of the borrowing tenure.

What are the benefits of short-term loans?

You don’t need to have any kind of collateral when taking out a short-term loan. This means that the lender doesn’t keep anything if you fail to repay, so there is little risk for them.Short-term loans can be a lifesaver when you need money in a hurry. This type of loan is available quickly, and you can usually have the money deposited into your account within a day or two.Short-term loans are also beneficial because they offer lower interest rates than other types of loans – mainly due to the short tenure.

Do you have to have a good credit score to apply for a short-term loan?

It depends on the lender. Some lenders may require it but some don’t. If your credit score is not high enough, applying for a personal loan might be beneficial. Apart from establishing your ability to repay, such loans also improve your credit score.

Does the interest rate vary according to credit score?

Yes, it does vary according to your credit history and profile. Those with low credit scores are likely to be offered higher interest rates because their chances of default are higher.

What are the requirements for applying for a short-term loan?

The usual requirements are proof of identity, proof of employment, personal bank account details, and your permanent residential address. This information is required by the lender to evaluate your credit score and income level.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, or check out his speaker profile on the CFA Institute website.