Things You Should Know About Short-Term Loans

Short-term loans are meant to be repaid within a year or a few weeks or months. They’re an excellent way to get fast cash to cater to financial needs over a short time. Short–term loans are an attractive option for start-ups or small businesses that don’t qualify for a bank line of credit or have an unexpected cash flow problem.

These loans can be unsecured or secured depending on the lender and can be used on emergency expenses like medical bills, car repairs, job loss, and home renovation. Learning about short-term loans before applying can help you make more informed financial decisions. Here are four things you should know about short-term loans.

Types of short-term loans

There are multiple short loan types to choose from, including:

Payday loans

Payday loans, including express loans, are costly, short-term loans for small amounts and should be repaid using your (borrower) next paycheck. Payday loans are also suitable for borrowers with poor or no credit history. They require proof of income, identification, and a checking account. Once a payday lender confirms your checking account details and income, they can disburse your loan amount within minutes, hours, or the same day.

Invoice financing

Invoice financing involves businesses borrowing funds against what’s due from clients. It assists companies in paying suppliers and staff, boosting cash flow, and reinvesting in growth and operations earlier than if they waited for their customers to clear their balances fully.

Line of credit

A line of credit is a short-term loan with a set credit limit, and you can tap into it as needed. You pay interest once you’ve borrowed on the line of credit. After repaying the loan, the same amount is available to you to borrow again. Line of credit is flexible because you take the loan, repay, and repeat the process, provided you adhere to the terms.

Eligibility criteria

Short-term loans are easy to qualify for, provided you provide proof of age, income, identity, address, and other required personal information.

Advantages of short-term loans

Short-term loans have many benefits, including:

  • They’re unsecured: If you’re applying for an unsecured loan, you won’t need to use your assets as collateral to secure the loan
  • They’re fast: Short-term loans are quick to access as long as you’ve met the eligibility criteria and your application was successful
  • They’re easy to apply for: Applying for short-term loans online is very simple. All you need to do is fill in the application and provide the lender with the required documents as proof that you’re eligible for the loan
  • There are multiple options: When looking for a short-term loan, you have several options to choose from, including payday loans, lines of credit, and more
  • They’re ideal for borrowers with bad credit: Since most short-term lenders don’t consider credit history when issuing these loans, borrowers with bad/ no credit can apply

Disadvantages of short-term loans

  • High-interest rates: Since unsecured short-term loans are a great risk for lenders, interest rates are high to cushion the providers in case of default
  • Risk of a hazardous cycle: Short-term loans have high fees and interest rates, increasing the possibility of defaulting. This results in extra charges for a loan extension, making it more challenging to repay and resulting if a debt trap

Endnote

Short-term loans are an excellent solution to a sudden financial crisis. Familiarize yourself with these things you should know about them.