Even if you can manage your finances successfully, may need cash for emergency expenses like unexpected medical bills or car repair or business startup. But due to short of cash may look for loan. This loan consists of lower amount and for shorter period of time than other type of loans.
Short-term loans are for sudden, temporary needs and loan is paid off within six months or so. Short-term loan does not have planned payment schedule. This is different from long term loan which lasts for a year to 20 or 25 years.
Short-term loan is an unsecured loan, available for anybody with a regular source of income. Getting quick cash for your temporary expenses, this might be right choice for you.
As this type of loan is for short duration, the lenders require higher interest rates and other charges than long-term loans to make more money. The interest rates, loan limit and payback period may vary for short-term loan, from banks, credit cards and online lenders.
The short term lending is associated with high interest rates and other charges, may restrict the consumers to apply only in necessary financial crisis and try to pay them back within short time to reduce the total amount.
Mostly people use this loan for paying their necessities like monthly bills, food, gas, rent and utilities, until their payday comes. These necessities are unavoidable and need immediate cash.
Here are some types of short-term loans, which you can use as it suits your financial needs.
Merchant cash advance
This type of loan is like cash advance but works like a loan. After borrowing money, the borrower allows the lender to access the borrower’s credit facility. Whenever the borrower’s customer makes a purchase, the lender will get a percentage of the sale.
Payday loans are short-term emergency loans, easy to get. But borrower had to pay whole loan with interest in one lump sum, when payday comes. The lender can get repayments from borrower’s account, using the continuous payment authority.
Line of credit
Line of credit is similar using business credit card. The credit limit is determined and monthly payment is made against the amount borrowed every month. The payments may vary according to the access of the line of credit every time. Line of credit charges less APR than business credit card.
This loan is about business account receivables, invoices that are yet unpaid by customers. The lender lends the money and charge the interest based on the number of weeks that invoices remain outstanding.
Getting short-term loan may not be your best choice but there are some benefits in getting short-term loan.
You can get fast cash in emergencies as the process is very quick in short-term loan. It does not require collateral in the form of a house, car or gold and approve short-term loan easily. Short-term lenders do not make issue of low credit score until the applicant has steady monthly income. Some lenders do not insist on fixing payment plan. They are flexible and willing to work with your preferences and needs.
On the other hand, the disadvantages of getting short-term loan are that they come with high interest rates, high fees on late payments and short limit of time may not suit your situation.