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    What You Need to Know About Short-Term Loans

    Short-term loans are loans you acquire for temporary business or personal needs. They need little or no collateral and should be repaid within a year and sometimes months or weeks. Short-term loans are a quick cash option and attractive to small businesses or startups still ineligible for bank lines of credit. They’re a viable solution for addressing financial emergencies.

    Since short-term loans have limited loan amounts, their lending requirements are relaxed, they’re easier to be approved. However, before applying for these loans, you should know everything concerning them. Here’s what you need to know about short-term loans.

    1. How short-term loans work

    Short-term loans are available online and in brick-and-mortar shops. Once you submit your application, proof of identity and employment, and any other required credit information, the lender reviews it. If satisfied with your details, they’ll share the loan terms, like the interest rates, amount, repayment schedule, and fees. If you’re okay with the terms, you agree to them, then the money is sent to your account, usually within 24 hours.

    2. Types of short-term loans

    There are various types of short-term loans you can consider, including:

    • Payday loans

    These are high-interest, short-term loans whose due date is your next payday. Payday loans, including guaranteed payday loans, must be repaid in a single lump sum payment. They’re unsecured, easy to access, and can be approved for those with bad credit. Nevertheless, payday loans are predatory and expensive.

    • Installment loans

    Installment loans can be secured or unsecured. They’re flexible and may be tailored to suit your needs about the repayment period and loan amount by ensuring they match your capability to repay. Timely repayment of the loan can help build or improve your credit score.

    • Lines of credit

    Lines of credit have preset amounts of money you can borrow as required, repay, and borrow again. The lender sets the repayment amount, interest rates, and other terms. While these loans have built-in flexibility, they can hurt your credit score and carry an overspending risk.

    • Invoice financing

    Invoice financing uses your company’s accounts receivables. The lender gives you the cash and charges an interest rate depending on the amount of time the invoice stays outstanding. Once the invoice is paid, the lender interrupts the payment to take their interest before giving you what’s due to your business.

    • Merchant cash advances

    Merchant cash advances are unsecured business loans for supporting cash flow over a short period through instant cash advances. It involves getting a lump sum amount from a lender, then repaying through sales

    3. Benefits of short-term loans

    • Easy to acquire: Short-term loans come in handy for individuals and businesses with bad credit. Their requirements are easy to meet, making them easier to access than traditional loans
    • No collateral is required: Unsecured short-term loans don’t require you to provide collateral, including a car, home, or other assets, to get approved
    • Fast access to cash: Once you apply for a short-term loan and your lender is satisfied that you’ve met the eligibility criteria, the money will be disbursed the same day you applied
    • Improved credit score: Since short-term loans are reported to the key credit reporting agencies, repaying on time boosts your creditworthiness
    • Fast application process: You don’t have to deal with lengthy, drawn-out procedures when applying for a short-term loan. Most lenders need proof of identity and evidence that you have an income source to repay the loan

    4. Disadvantages of short-term loans

    • They involve small amounts: Short-term loans offer small amounts because they’re to be repaid sooner than long-term loans. This prevents borrowers from being overburdened by huge monthly payments
    • They’re expensive: Most short-term loans don’t require credit checks, making them high-risk for lenders. As such, they charge high-interest rates and rollover fees when you cannot pay, making them costly

    Endnote

    Short-term loans are a quick cash option for personal and business needs. Learn everything you need to know about these loans before applying for one.

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