Short Term Loan

Short Term Loan

An urgent financial need can be met in a number of ways by banks and NBFCs in India. For both businesses and individuals, Indian banks and financial corporations are open to the idea of lending almost instantaneous funds in the form of a short-term loan. For many businesses and individuals this an attractive proposition when in a financial crunch. However, an in-depth understanding of short-term loans is necessary before applying for one. This article aims to provide all the information the reader requires for preliminary research on short-term loans before one can approach a bank or an NBFC for such a loan. Read further to know more.

What is a Short-Term Loan?

The name short-term loan is self-explanatory and mainly refers to loans that have a shorter repayment tenure; usually under one year. As mentioned before, these loans are available for both businesses and individuals but are often characteristically different from business loans or personal loans, wherein the repayment tenure is often longer than a year subject to the amount borrowed. In most cases these loans are unsecured. However, certain banks may require collateral for a short-term loan. In case of confusion, short-term finance, payday loans and short-term installment loans are all categorized as short-term loans by Indian banks and NBFCs. These loans are relatively easier to acquire and are often the last resort for individuals and businesses that cannot qualify for a long-term personal loan or business loan from a bank or an NBFC. 

Definitive Characteristics of Short-Term Loans

Short-term loans are defined by terms and conditions for repayment, interest rates, lending amounts and other requisites and that a bank or an NBFC might attach to such a loan. Listed below are definitive characteristics of short-term loans that are worth looking into. For the reader’s convenience, the definitive characteristics of short-term loans are listed in bullet points and with the help of an infographic.

• Available for both businesses and individuals
• Eligibility for a short-term loan depends upon your credit history at some banks and NBFCs, yet there are other financial corporations that may extend loans to those with poor credit history.
• Applying for these loans is often an online process as paperwork is minimal
• Approval and disbursement of funds can take place within a day in many instances
• These loans are both secured and unsecured, subject to the bank or NBFC you are dealing with
• Repayment tenure ranges from 60 to 120 days.

Salient Features of Short-Term Loans

Interest Rates

It may not have escaped the reader’s notice, that this article does not shed light on the interest rates applicable to short-term loans thus far. This is only because, short-term loan interest rates are truly variable and mostly depend on the bank or financial institution one chooses to deal with. In some cases, the interest rates on short-term loans are as high as 2000% p.a. However, this generally does not act as a deterrent as most borrowers are aware of a short-term repayment tenure which results in a lesser accumulation of interest paid on the loan amount.  When borrowing from banks, interest rates are comparatively lower in comparison to borrowing from private lenders. However, private lenders are often willing to overlook poor credit history for the sake of maximizing their profit margins by charging high interest rates. In most cases, short-term loans or pay-day loans are easier to acquire when dealing with a private lender as in comparison to a bank.

Short-Term Loan Apps

As mentioned before, short-term loans are easily processed online and as such borrowers can easily access a wide range of short-term loan apps that disburse short-term loans on an almost instantaneous basis. This is primarily because paperwork required is minimal when it comes to short-term loans and can be easily uploaded to the database of a bank or a financial institution via the internet. The loan is then processed in record time, the borrower is notified about his or her eligibility within hours and the loan amount is credited to the borrowers account in 24 hours in many cases. There are multiple short-term loan apps for both Android and iOS devices that deal in the quick approval and disbursal of short-term loans.

For Those with Bad Credit History

Borrowers with bad credit history can apply for short-term loans anyway, as chances of approval are significant. It is important to note that bad credit history will get you a short-term loan, albeit with higher interest rates from certain banks and financial institutions.

Variation of Short-Term Loans

There is a variation of short-term loans that individuals and businesses can apply for. These are as listed below.

• Personal Loans – for amounts as high as Rs. 30 Lakhs that can be repaid with interest in monthly installments over a period of 6 months to 5 years.
• SME Short Term Loans – for small to medium enterprises wherein the loan amount is subject to the annual turnover and net worth of the borrower.
• Bridge loans – to supplement financial needs till the point where one is able to qualify for another loan.
• Demand loans – urgent loans in exchange for collateral such as insurance policies and NSCs wherein the loan amount is subject to the maturity value of the savings or insurance instrument.

Documents Needed

The documents needed for short-term loans are minimal and as listed below.

• Pan Card
• 3 Months Pay Slips
• Residential Proof
• Identity Proof
• Age Proof
• 6 Months Bank Statements
• Employment Proof

In conclusion, while short-term loans are easily available, one must consider the pros and cons before applying for one. The objective of this article is to help the reader make an informed decision before applying for such loans.

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