The short-term loan is not strictly a modern phenomenon, but access to short-term loans has become much more equitable in recent years thanks to the proliferation of technology.
Millions of consumers and businesses have relied on short-term loans recently, especially as a growing cost-of-living crisis continues to impact affordability month-to-month. But what are the merits of a short-term loan, for the uninitiated?
Table of Contents
- 1. No Long-Term Commitment
- 2. Short-Term Loans are Unsecured
- 3. Short-Term Loans are Easily Accessed
- 4. Short-Term Loans Can Cost Less
- 5. Short-Term Loans are Not Ringfenced
- 6. You Can Use Short Term Loans For Anything You Need
- 7. You Can Be Approved Even If You Have a Lower Credit Score
- 8. There Are Several Types of Short Term Loans You Can Choose From
- Final Thought
1. No Long-Term Commitment
The clue is in the name; short-term loans do not come with a long-term commitment or liability. Loans of this type typically come with flexible terms, but do not see their contracts exceed 12 months.
The liability is not spread over a long period of time, meaning you or your business do not have a debt to your name for more than a year. This can be particularly important from a cashflow perspective if you are a young business.
2. Short-Term Loans are Unsecured
Another key advantage to short-term loans lies in the nature of their terms. Larger business and personal loans are generally asset-backed, meaning you need an asset such as a property or vehicle that can be held against the value of the loan as collateral. Short-term loans require no such thing, meaning those who do not already have significant investments can access lump sums in relatively short order.
3. Short-Term Loans are Easily Accessed
Speaking of which, short-term loans are also unique in that they can be accessed with relative speed. Where larger asset-backed loans tend to involve waiting time for investigation and paperwork, short-term loans can often be agreed and offered within a 24-hour time period.
4. Short-Term Loans Can Cost Less
Short-term loans typically come attached with higher interest rates. This is because they tend to be unsecured, which significantly increases the risk for the lender; higher rates of interest deter potential borrowers who may not have the means, and financially protect against those unexpectedly unable to pay.
But, despite the higher rate of interest, the cost of a short-term loan can be less than that of a long-term one. This is especially true where variable terms are concerned, as a business or individual may be able to pay off their loan even earlier – greatly minimising the cost incurred through interest.
5. Short-Term Loans are Not Ringfenced
Lastly, long-term loans – whether business loans or personal loans with specific terms – are often ‘ringfenced’ by lending institutions for spending on pre-agreed investments and assets. Short-term loans do not come with the same stipulations, enabling a more open approach to expenditure and the ability to cover emergency costs.
6. You Can Use Short Term Loans For Anything You Need
Short-term loans offer a flexible solution for anyone who needs access to quick cash. There are no restrictions on how you can use the funds from a short-term loan, so you can use them for anything you need. Whether you need to pay for an unexpected bill, make a large purchase, or cover other expenses, a short-term loan can help.
7. You Can Be Approved Even If You Have a Lower Credit Score
If you have a lower credit score, it can be difficult to get approved for a traditional loan. However, short-term loans are typically easier to qualify for. This is because short-term lenders focus more on your ability to repay the loan, rather than your credit score.
You can be accepted for a short-term loan as long as you have a reliable source of income and can demonstrate your ability to repay the loan.
8. There Are Several Types of Short Term Loans You Can Choose From
There are several different types of short-term loans you can choose from, like payday loans Instalment loans, and doorstep loans. This means that you can find a loan that best suits your needs. You can also choose from a variety of lenders, so you can find the one that offers the best terms and conditions.
Payday Loans
A payday loan is a type of short-term loan that is typically repaid in one lump sum on your next payday. This means that you will need to have a steady income in order to qualify for a payday loan. Payday loans are typically easy to qualify for, even if you have a lower credit score.
Most payday loans assist borrowers to meet short-term obligations and have terms of 30 days or less. Most loans range from $100 to $1,000, with $500 being the most typical sum.
Instalment Loans
An instalment loan is a type of loan that is repaid over time with a set number of scheduled payments. This type of loan is typically used for larger purchases, like buying a car or making home improvements. Instalment loans typically have terms of three months to three years.
Doorstep Loans
A doorstep loan is a type of short-term loan that is typically repaid in cash. Doorstep loans are typically easy to qualify for, even if you have a lower credit score. With a doorstep loan, You don’t need a bank account as a representative from the lender will come to your home to collect your payments.
Final Thought
While it may seem like a good idea to quickly solve a problem with a short-term loan, you should always consider the risks of taking out a loan. The main downside of a short-term loans is that they typically have higher interest rates than traditional loans.
Make sure that you understand the terms and conditions of your loan before you agree to anything. You should also confirm that you can afford the repayments before taking out a loan. Short-term loans can be a great solution for anyone who needs quick access to cash, but they should be used responsibly.
