Short term loans aim to support a business capital or temporary personal need. Since it is a form of credit, you must repay the principal amount and the interest within a stipulated period.
Short-term loans are ideal for start-ups and small businesses that cannot yet receive a credit line from the bank. They also help the individuals who are experiencing a sudden cash-flow problem. The loan consists of borrowed money, ranging from $100 to $100,000.
To know more about short term loans, please consider checking out the rest of the write-up now.
Types of Short Term Loans
- Payday Loans
Payday loans are quite easy to obtain. They are also known as emergency short term loans. Even the street lenders provide payday loans. The disadvantage is that the whole loan amount and the interest must be reimbursed in one sum when the payday arrives.
Repayments are usually done when the lender extracts out the amount from the borrower’s account. The former utilizes constant payment authority. Payday loans also carry immensely high-interest rates.
- Merchant Cash Advances
This short loan is a cash advance, but it functions as a loan. The lender offers the amount required by the borrower. The borrower makes the payments by enabling the lender to access the credit facility of the borrower.
Each time a borrower customer makes a purchase, a specific percentage of the income is taken by a lender until the loan is repaid.
- Invoice Financing
Such a loan depends on the accounts of business receivables – unpaid invoices. The lender loans money and inflicts interest based on the weeks the invoices stay outstanding.
When the invoice is paid, the lender interrupts the payment and takes the interest before giving the borrower back what is due.
- Line of Credit
Using a line of credit is like using a credit card. A credit limit is decided, and the business can tap into the line of credit as required. It makes installment payments against whatever sum has been borrowed.
The monthly payments vary based on the line of credit that has been evaluated. One advantage of such a short term loan is that it charges a lower APR (annual percentage rate).
Characteristic Traits of Short Term Loans
Short term loans are called so because you can pay back the loan in a short period. In almost all cases, the loans are paid off between six and twelve months. If the duration is extended, the loan is called a medium or long term loan.
A long term loan lasts for a maximum of 25 years. Short term loans do not have a definite payment schedule or a due date. The borrower can pay back the loan when they feel it is convenient.
Advantages of Short Term Loans
- Shorter period for incurring interest
- Fast funding time
- Easy to acquire
As evident from the discussion above, short term loans can help both individuals and businesses. For businesses, they serve as a means to resolve unexpected cash flow problems. For individuals, they are an amazing source of emergency funds. To apply, please pay a visit to a reliable platform to get best product and utmost support when needed.