What are Short Term Loans?

What are Short Term Loans?

The easiest way to define a short-term loan is a loan than is repaid in less than a year. When life brings you unexpected expenses or any type of fina

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The easiest way to define a short-term loan is a loan than is repaid in less than a year. When life brings you unexpected expenses or any type of financial problem, a short-term loan is a perfect solution! It could help cover bills for repairs or unexpected illnesses – it’s a financial bridge to buy time until you have either received the money to pay for the necessary repairs, or you are healthy enough to go back to work. Whatever the situation, it is the

What are the Advantages of Short Term Loans?

There are numerous advantages for getting a short-term loan. One of the main benefits of a short-term loan is how fast you can get it. Did you know if you apply for a short-term loan, you can receive it that same day? In addition to short-term loans being easy to get, personal loans are unsecured and have flexible payback options. Other advantages include:

  • Fast Approval: As mentioned above, you can receive your loan in as little as one day, making a short-term loan perfect for those who need quick access to cash.
  • Paying Less Interest: Short-term loans mean you pay back everything within a shorter time period leading to less interest.
  • Improve Credit Rating: If you know you have a bad credit history, a short-term loan can help improve your credit score as long as you repay the loan on time.
  • Flexibility: Short-term loans are convenient and flexible.

Why take a Short Term Loan?

You can use a short-term loan for any type of previously mentioned personal reasons. Some other reasons to get a personal short-term loan include:

  • Debt Consolidation: If you have poor credit history and multiple banks are turning you down for long-term loans, any type of financial problem you may face can become even more stressful and time-consuming. Short-term, personal loans allow you to pay off your debt and improve your credit status. You can reduce payments by more than 50 percent and pay off your debt in less time. If you do it properly, you can repair your credit score.
  • Home Improvement: If you need to make any improvements to your home, apply for a short-term loan. You can use the money to patch a roof or fix whatever is broken!
  • Business & Career Development: If you cannot pay for school or a specific class which you believe could make your future brighter and richer, consider taking out a short-term loan to better your education, pay for it, and avoid debt.

What are Types of Short Term Loans?

They come in various forms, as listed below:

  1. Merchant cash advances

This one is actually a cash advance but it still operates like a loan. A financing company advances you cash in exchange for a percentage of your daily credit card and debit card sales, plus a fee. Merchant cash advances can be quick, easy ways to get a business cash advance with no need for collateral—even if you do not have a great credit score.

  1. Lines of credit

A line of credit is a preset borrowing limit that can be used at any time. The borrower can take money out as needed until the limit is reached, and as money is repaid, it can be borrowed again in the case of an open line of credit.

  1. Payday loans

Payday loans are relatively easy to get. Even high street lenders offer them. The drawback is that the entire loan amount, plus interest, must be paid all at once when the borrower finally gets the amount of money needed. Repayments are typically done by the lender taking out the amount from the borrower’s bank account, using the continuous payment authority.

  1. Online or Installment loans

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.

  1. Invoice financing

This type of loan is done by using a business’ accounts receivables – invoices that are, as yet, unpaid by customers. The lender loans the money and charges interest based on the number of weeks that invoices remain outstanding. When an invoice gets paid, the lender will interrupt the payment of the invoice and take the interest charged on the loan before returning to the borrower what is due to the business.

Advantages

There are many advantages in taking short term loans, including:

  1. Shorter time for incurring interest

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.

  1. Quick funding time

They 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, whatever financial problem is the borrower facing, they can obtain the needed funds more quickly.

  1. Easier to acquire

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.

Disadvantages

The main disadvantage of short term loans is that they provide only smaller loan amounts. As the loans are returned or paid off sooner, they usually involve small amounts so that the borrower will not be burdened with large monthly payments.

Key Takeaways

Short term loans are very useful for both businesses and individuals. For businesses, they may offer a good way to resolve sudden cash flow issues. For individuals, such loans are an effective source of emergency funds. A loan is money, property or other material goods given to another party in exchange for future repayment of the loan value amount with interest. A loan may be for a specific, one-time amount or can be available as an open-ended line of credit up to a specified limit or ceiling amount.

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