What are Short Term Loans? – Key Features and Benefits
The tenure for short term loans generally ranges from about a month to a year. They are usually unsecured, which is a plus point. This means that you don’t have to pawn any property as a security to avail them. This is beneficial for people who are not able to get a loan from financial institutions for a longer tenure for several reasons. You can download the Navi App to avail of short term loans quickly and easily.
What is a Short Term Loan?
A short-term loan provides temporary support for an individual’s urgent financial need. As its name suggests, short-term loans have a small tenure, and borrowers must repay them within a given period. The maximum repayment period for short-term loans is usually five years.
Moreover, short-term loans are mostly unsecured, meaning one does not need to pay collateral to get funds. Therefore, it is also easier to get short-term loans than conventional loans to meet small financial requirements.
Types of Short Term Loans
1. Personal Loan
You can procure a personal loan to meet personal needs such as travel, renovation of your home, education needs, and so on. Personal loans are often extended based on your income, credit score, and ability to repay. Many personal loans don’t require any collateral.
2. Bank Overdraft
Banks and NBFCs provide this facility to customers with balances lower than they intend to withdraw. However, banks will charge high-interest rates for this extra amount.
Customers must be careful while exercising this facility, as some banks may charge extra interest from customers.
3. Demand Loans
Demand loans can be procured to meet urgent financial needs. You can pledge your life insurance policy or other financial instruments in order to procure it.
4. Instant Cash Loan
These are small unsecured loans with which individuals can borrow trivial cash from Rs. 10,000 to Rs. 2 lakh. One can fulfil requirements like medical expenses, travel, and home renovation with instant cash loans.
5. Line of Credit
This is a type of loan under which banks or NBFCs set a revolving credit amount for borrowers. Individuals can either borrow any amount within this limit as instalments or as a lump sum. Banks determine this credit limit on the basis of borrowers’ creditworthiness.
Furthermore, banks will charge only the borrower’s withdrawal amount and not the remaining amount. Also, borrowers cannot withdraw until they repay their dues. After full repayment, borrowers can resume borrowing.
6. Payday Loans
These loans help borrowers meet their monetary requirements at month’s end when they need more balance. An individual’s salary determines their loan amount for payday loans. As its name suggests, the borrower must repay this as soon as they receive their salary for the next month. Payday loans are known to carry very high-interest rates.
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How Does Short Term Loan Work?
Unlike conventional loans, short-term loans carry a small repayment period, say one year or less. Also, the approval of these loans depends primarily on a borrower’s creditworthiness. The following points describe how these loans work:
- Borrowers can opt for online or offline applications to get short-term loans from banks and NBFCs.
- Banks and NBFCs perform a background check and judge the borrower’s creditworthiness based on the provided documents.
- Lenders who find an applicant’s profile satisfactory will approve their loan request. However, banks and NBFCs will abide by their terms and conditions while approving loans. Borrowers should carefully study these terms and conditions to ensure hassle-free approvals.
- On agreeing to these terms and conditions, banks will sanction a short-term loan. Also, borrowers will receive their loan amount in account usually within 24 hours.
Features and Benefits of a Short Term Loan
- Short term loans do not require you to pledge collateral in order to procure them.
- A lower amount of documentation is needed in order to apply for a short term loan.
- Many short term loans have a flexible payment option where you can set up your own repayment plan. In long-term loans, usually, you have a fixed repayment plan.
- It’s easier to procure a short term loan, and you can procure them through a completely online process through apps like Navi.
- Short term loans get quickly approved and have a faster disbursal.
- Among short term and long-term loans, short term loans tend to be more for personal use in nature.
- The amount borrowed through short term loans can get credited straight away to your bank account, allowing you to use the money as you please.
- You can avail of short term loans, and pay them back on time to improve your credit score.
Documents Required for Short Term Loans
To sanction a short term loan, the following documents are required:
- Proof of identification
- Proof of age
- PAN card
- Address proof (Driver’s license/Voter’s ID/Passport/Electricity bill or Phone)
- Income proof
- Recent coloured photographs
There might be some additional documents required in rare cases. It is advisable that you check the document requirements thoroughly before applying.
How to Apply for a Short Term Loan?
You need to follow these steps to apply for short-term loan from a financial institution:
- Step 1: Visit the online portal of your preferred bank or NBFC. You can also visit their net banking app.
- Step 2: Provide the basic KYC details as asked.
- Step 3: Fill in your desired loan amount and tenure in the given space for an instant loan.
- Step 4: Upload the required documents for verification.
- Step 5: Carefully read and agree to the terms and conditions before submitting an application.
- Step 6: Lenders will approve your loan in a short while after document verification. Your loan amount will be disbursed soon after this.
Advantages of Short Term loans
Here are the advantages of short-term loans:
1. Opportunity for Small Loans
Borrowers do not need to opt for traditional loans when they require immediate cash. Short-term loans make it very easy to get small loans.
2. Unsecured Loans
For short-term loans, borrowers do not require any collateral as these are typically unsecured loans.
3. Instant Approval
Unlike the traditional loan application process, lenders instantly approve short-term loans after verifying the essential documents.
4. Less Risky Loans
Owing to their short repayment span, these loans are considered less risky for lenders than traditional loans.
5. Relatively Low Interest
As short-term loans have a minimum repayment period, the borrower does not need a very high amount on interest payments. This is especially true if he/she repays the loan in a very short time.
Disadvantages of Short-Term Loans
Besides the above advantages, short-term loans also carry the following disadvantages:
1. Small Loan Amount
This type of loan comes with a minimal amount. These are only meant to fulfil urgent needs.
2. High-Interest Rate
Owing to their short tenure and loan to meet urgent requirements, short-term loans have high-interest needs. Meeting them can be a hard nut to crack for borrowers with mediocre pay.
3. Not for the Ones with Low CIBIL Scores
CIBIL scores reflect the creditworthiness of borrowers. Therefore, mainstream banks and financial institutions often reject applications with low CIBIL scores. This makes it challenging for a population with poor CIBIL to borrow money urgently.
Final Word
With this information, you’re all set to apply for a loan through Navi. It also offers you an internal loan calculator that allows you to accurately determine the cost you will incur and the right amount you need to apply. Go ahead and explore the wonders of Navi and meet your financial commitments. All that remains is for you to head over and download the Navi App now to avail the benefits!
FAQs
Ans: Short-term loans carry high risks for a borrower who is unable to balance its short repayment period and high-interest rate. Therefore, borrowers must consider this associated risk before opting for short-term loans.
Ans: Lenders charge penal charges and late payments for missing a repayment or paying after the due date. They also charge processing fees for short-term loans.
Ans: No, short-term loans usually do not affect an individual’s credit score. However, missing an EMI date or defaulting on a short-term loan can disturb their credit score.
Ans: The tenure for a short-term loan can vary from one bank to another. A short-term loan’s tenure usually ranges from 1 month to 1 year.
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Disclaimer: This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
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