What is Short-term Loan?

A short term loan is a type of loan that you need to repay within a short time. It helps borrowers meet their short term financial needs such as home renovation, car repair or paying unexpected utility bills. These loans are available for both individuals and businesses. Companies can use short term loans to arrange money for working capital needs.

The time period of the loan may vary depending on the type of loan. Typically the loan tenure is between 6 months to a year, but some loans have a tenure of two years. The interest rate of such loans is higher than the traditional bank loans.

How Does A Short Term Loan Work?

A short term loan works to help people when they are in need of emergency financial help. For example, if all the debtors of a business are delaying payments, the business can not finance its daily operations. Many financial institutions and credit unions offer short-term debts to businesses and individuals to cover their everyday costs.

These loans are of different types, and borrowers can take these loans from banks, financial institutions or brokers. Borrowers can apply online or visit a loan provider and meet in person. The lender will check the applicant’s affordability, creditworthiness and discuss loan terms before the approval of the loan application.

Features Of Short Term Loans:

Short term loans are different from traditional bank loans, having significant features including:

Types Of Short Term Loans

Short term loans come in different types, some of which are as follows:

Line Of Credit (LOC)

A line of credit is a type of loan in which a financial institution or bank sets a maximum amount that an individual can borrow. The borrowers can take out this loan amount in instalments or in a lump sum. However, borrowers are not allowed to withdraw more than the permitted amount depending on their creditworthiness. In addition, with the loan amount, the borrower needs to pay a set interest rate.

In return, you only have to pay the withdrawn amount and not the remaining available balance. The borrowers are not able to withdraw any amount if there is any due loan or interest amount. After paying all the dues, a borrower is again able to use the line of credit service. Line of credit is the best option for individuals who need a regular short term credit supply.

Bank Overdraft

It is one of the most common types of credit facility. If borrowers have insufficient money in their account than the amount they are trying to withdraw, the bank will provide the rest with this borrowing facility. In return, banks charge a high-interest rate from the borrowers.

Businesses need huge amounts of money to meet their day to day processes which leads them to a fast falling bank balance. However, borrowers should exercise caution while using bank overdraft services. Some short term loan companies UK charge exceptionally high-interest rates. Such banks also have to pay millions in fines for these illegalities.

Short Term Bank Loans

These loans are different from Line of credit because these loans end after a specific tenure. If borrowers need to borrow again, they have to make a new loan application—for example, a personal loan to go for a trip or for a wedding.

Merchant Cash Advances

It is a type of short term borrowing that is a cash advance but acts like a loan. It is best suitable for businesses that deal with large debit/credit card sales instead of cash sales. With the help of this facility, lenders borrow a specific amount according to the needs of the borrower and get access to the borrower’s credit facility. Every time a customer of the borrower makes a purchase, a certain percentage of it is taken by the lender until all the loan amount is repaid.

Payday Loans

It is a short term loan that is easy to obtain compared to other types. The loan amount depends on the borrower’s monthly income. Payday loans offer high interest rates, and you can take them from high street lenders. The borrower has to repay the loan amount plus interest rate when you receive your next paycheck.

Invoice Financing

Using this type of facility, a company takes out a loan from a financial institution or bank against the money that is yet unpaid by the customers, i.e. accounts receivables. When your customers take time to pay bills, during this time, you can borrow money to meet liquidity. The amount of loan and the interest rate is based on the number of weeks that your customers take to pay bills. Whenever an invoice is paid, the lender interrupts and takes the loan amount plus the interest from this payment.

Payday Loan

A short-term payday loan is also called an emergency short-term loan, and it is relatively easy to obtain. The amount you borrow through a payday loan plus interest should be returned in a lump sum when your pay arrives.

Logbook Loan

A logbook loan is secured against your vehicle, usually a car. During the period of repayment, the vehicle's ownership belongs to the lender. However, you can use the vehicle, but if you can not return the lent money on time, the lender can sell the car to get his money back.

Revolving Credit

In revolving credit loans, a person can borrow money, repay it and then re-borrow the amount needed. Revolving credit loans are not like term loans. It is a short-term loan easy repayment option to repay the amount at once or in monthly instalments.

No Credit Check Loan

Short-term loans no credit check are best for the people who have a bad financial history as the lender allows them to lend the money without any review of their credit history. There is only a soft credit check by the lender to protect himself and the company from any fraud.

Here are different scenarios in which short-term loans are the best

Property Development

Usually a short-term loan is applied for the acquisition of a land or for the purpose of property development. You can take out a short-term loan at any phase of property development.

Property Value

Short-term loan can solve your financial problem if you need money to increase the value of your property before sale or any other purpose.

Financial Reputation

A good financial or credit record is very important for business. You can take a short-term loan to improve your credit score.

Business Startup

Sometimes a business opportunity arrives, but you may not have enough resources or cash to avail this opportunity in this case a short-term loan is the best solution to your problem.

Advantages of Short-term Loan

Short term finance offer a number of benefits to the borrowers, including:

Quick approval

Short term loans do not include lengthy approval processes, and borrowers can get quick access to funds to fulfil their emergency financial needs.

Avenue for small loans

Borrowers do not always need a long term loan or mortgage. Individuals who need small amounts of money for a short amount of time find short term loans ideal to meet their short term obligations.

Low-interest rates

When you take a loan for a short period, you will ultimately pay less interest on it because the longer you owe the lent money, the more the interest rate.

Unsecured

Most short term loans are unsecured, and borrowers do not need to use any of their assets as collateral. It makes it easier for borrowers to get funds in a short time.

Improves credit score

If you have a poor credit history, you can take a short-term loan for bad credit, and when you repay the lent amount, you will see your credit rating improve.

Flexible repayment options

These types of loans are flexible and convenient. You can repay the lent amount whether in instalments over a while or as a lump sum.

Now you know that there are a number of short term loan benefits which make it popular among the borrowers.

How To Find A Short Term Loan?

Be careful when searching for short term loans online. You may find most of the results as payday loans. And it is not obvious that you will get the expected results. Payday loans come with high-interest rates and fees and are expensive ways of borrowing. Such loans also show up in your credit history and make it difficult for you to get other loans. The lenders may refuse to approve your loan application if you have taken a payday loan in some recent years.

We are providing you with the best short term loan comparison service. You can get a quick comparison of loans by providing us with some necessary information such as how much money you need and for how long.

No matter which type of short term loan you want to take, you should compare the following features in order to find a cost-effective and suitable loan.

Alternatives To Short Term Loans

If you want to avoid high interest rates and fees that come with short term loans, you should look into the following alternatives to short term borrowing:

Personal Loans

You can take out a personal loan and repay it early. Borrowers always have an option to repay the loan early, but you may have to pay an early payment fee. Look for all the terms and conditions to know how much early payment charges you need to pay when thinking of using personal loans in this way.

Overdraft

Some current bank accounts offer 0% overdraft when one draws a relatively small amount of money. If your account does not have this feature, you can consider switching it.

Even if you do not have a 0% overdraft, the interest rate and fees on a normal overdraft can be cheaper than taking out a loan. However, if you exceed your overdraft limit, your interest rate and fees are likely to be very expensive.

Credit Unions

Credit unions are nonprofit organisations that are owned and operated by members. The members of credit unions pool savings and lend them to members in need.
They offer flexible loan terms and also allow their members to get smaller amounts of money over shorter periods. Borrowers can also repay the loan amount early. To get a loan from the credit union, you should be a part of the union and save with them for some time before taking out a loan.

Flexible Loans

There are only a few lenders that offer flexible loans. You can take out such loans anytime you need them and also choose how much you will repay each month. There is an early repayment fee, so you can use these loans as short term debts. However, the annual percentage rate is likely to be higher, and you also have to pay a borrowing fee. Some lenders market payday loans as flexible loans, so you must take care while taking out a flexible loan.

Credit card

Individuals having a good credit record are able to take out a 0% credit card to use as a short term loan. You can use a credit card to pay when you purchase anything you need. If you use a credit card correctly, it can act as an interest-free, flexible loan. Make sure to repay at least a minimum amount each month and repay all the amount before the 0% term ends.

Almost all credit cards give you a month interest-free. So, if you only need funds for a very short time and can repay the amount within a few weeks, a credit card can be a good option.

Low APR credit cards can also be an option because they offer lower interest rates than payday loans and other types of short term loans.

Peer To Peer Lending

Another option that you can use as an alternative to short term loans is peer to peer lending. It allows you to borrow money directly from the investors. Some lenders allow you to repay early without any early repayment fee, so you can consider it as a short term loan.

Who Can Get A Short Term Loan

Whether you want to take out a standard short term loan or looking for another type of short term borrowings, they have similar requirements:

If you pass through the crest and affordability check, you will get quick access to funds.