Short term loans are a valuable option, especially if you own a small business or a start-up, and you are not eligible for a credit line from a bank. These types of loans can range from a few hundred dollars to a few dozens of thousands of dollars. Apart from their use in small businesses and start-ups, short-term loans can be used also by individuals who find themselves with a sudden financial problem.
In the article we have prepared for you, you will be able to find all the information about short- term loans so that you can make an informed decision if they are the right option for you.
What Are Short-Term Loans?
As the name says, short term loans are loans that need to be paid off quickly. In most cases, the period in which you have to pay it off is within six months to a year, and in rare cases 18 months. Any loan longer than this is considered a medium-term or long-term loan.
Types Of Short-Term Loans
There are different short-term loan types you can choose based on your needs and wishes.
This particular type is relatively easy to obtain. You can even find them in high street lenders. The bad thing is the fact that you have to pay the entire loan amount, plus interest when your payday arrives. It should also be noted that you can actually get a mortgage after having payday loans, unlike many other short-term loans. This aspect makes such loans pretty popular, even with the fact that payday loans normally have very high-interest rates.
Online Or Installment Loans
This is another type of loan that is relatively easy to get. The great advantage is that you don’t have to go to the bank, but rather do the whole process online. Once you get your approval, the money will practically wire to your account within minutes
Merchant Cash Advances
Even though this one is actually a cash advance, it still works like a loan. The lender loans you the amount you need. After that, you make the loan payments by allowing the lender to access your credit facility. For instance, if you have a small business, every time you get a purchase from a customer, a certain percentage of your sale goes to the lender until the loan is repaid.
Invoice Financing is used to improve a company’s cash flow. That is, a business borrows on invoices before their customers pay. The lender you choose will take a percentage of the invoice as a fee for the service. The most common reason for choosing this type of short-term loan is solving short-term problems associated with customers delaying payment for a sustained period. Sometimes a company has difficulty obtaining any other form of business finance or credit which is why they choose this option.
Lines Of Credit
This type of loan is much like using a business credit card. You have a set credit limit, and you are able to tap into the line of credit as needed. It makes monthly installment payments against the amount you have borrowed. So, the amount you have to pay monthly will vary in accordance with how much of the line credit you have accessed. The advantage of this type of loans compared to the business credit cards is that the former normally charge a lower Annual Percentage Rate.
What Are The Advantages?
There are many advantages you as a borrower can have in taking out a loan for only a brief period of time.
They Are Easier To Acquire
The requirements for short-term loans are generally a lot easier to meet, compared to long-term loans. Since these loans are usually for relatively small amounts, the banks will not have as strict and long regulations.
Quick Funding Time
These types of loans are seen as less risky compared to the long term ones since they have a shorter maturity date. Your ability to repay the loan is less likely to change significantly in such a short time frame.
Lower Total Interest Payments
Short-term loans have a shorter time for incurring interest. That is, since you need to pay them off generally within one year, there will be lowered total interest payments. This advantage is particularly visible when you compare them to long-term loans, where the total interest payments are significant.
In the end, there are a plethora of different options that one might opt for, but the one that you will ultimately end up choosing heavily depends on your current situation. That being said, make sure that you assess all the important variables regarding your financial situation, as well as your plans and predictions for the future of your finances before actually opting for a loan.
Never forget that a good decision is always an information-based one, so, make sure that you do your research in order to find out the best possible option for your specific situation!