Short term loans are loans that have a short repayment period usually 12 months or less.
They are sort after by individuals, entrepreneurs and businesses to meet urgent needs. The loan is payable after the specified period and since it is a type of credit, it involves the capital amount as well as the interest charged.
A small business or a start-up may not yet be eligible for a bank loan, a short term loan will come in handy.This kind of loans involves lower amounts starting from $100 to $100,000. In case of an unexpected temporary financial problem both in your business and as an individual, a short term loan is a viable option.
Characteristics of a short term loan
Short repayment period- a short term loan is repaid within a period of six months to one year. When this time limit is exceeded, the loan is termed as a medium-term loan or a long term loan. Lower borrowing amounts- as compared to other types of loans, a short term loan allows smaller borrowing amounts Unsecured- in most cases these loans are unsecured. The fact that the borrowed amount is low and the repayment period short, collateral is often not necessary. Higher interest rates loans to be paid within a short period often carry a high-interest rate.
Types of short term loans
- Bank overdraft
Bank overdraft is a facility offered by the bank whereby the bank extends more funds to allow you to pay for your needs even when your funds are insufficient. The amount of the overdraft is fixed in advance by the bank with additional bank charges to be paid by the borrower.
- Online loans
This is a loan applied for and approved online. Once the loan is approved the money is transferred to the borrower’s account. It is efficient and easy.
- Payday loans
These are emergency loans offered by high street lenders, the loan is supposed to be paid on the borrower’s payday in one installment, this is inclusive of both the capital and the interest.
- Line of credit
This corresponds with a business credit card, once you apply for a loan, a limit is set and the business can access it as much as required. Monthly payment installments are made in accordance to the amount borrowed.
- Merchant cash advance
Under this loan, the borrower receives the money from the lender, the lender then recovers the money as a percentage of the borrower’s daily sales. This loan is best suited for businesses with large debit or credit card sales.