- June 16, 2021
SHORT TERM LOAN: FEATURES, VARIETIES, BENEFITS & DIFFERENCES
The entire borrowing service is divided into two major sectors. One is long-term, and another is short-term. At the same time, many people prefer short-term loans without even knowing everything about it. This is because it serves multiple benefits, and among them, the most attractive one is its quick process which helps a borrower mitigate the urgent requirement of a fund.
Lenders of the UK generally lend short term loans for unemployed persons. Due to uncertainty of income, while these unemployed people can’t eligible for long-term loans, this type of loan primarily helps to run a family or whatever the need may be. Here we will discuss all short-term loans and how they differed from long-term.
What is short term loan?
From the very term ‘short term,’ it is quite clear that this is a particular type of borrowing facility not for a long time. Here time denotes the repayment period. Therefore, this type of loan is generally sanctioned on one crucial condition: the borrower has to repay the entire outstanding money within a bit of period.
Usually, lenders who provide this type of loan try to recover the lent amount within 2 years. Sometimes, even before that. For instance, if a person takes out payday loans or doorstep loans, he has to repay the entire outstanding amount within 24 months. However, the repayment period is negotiable and depends upon the lender and the borrower’s capability.
Short term loan consists of several features. Here are mentioned some critical characteristics.
- Quick process – Generally, a short-term loan is considered a borrowing method that helps mitigate emergency requirements of funds. Whether there is a medical emergency or capital issue in business, the quick loan application process leads towards same-day disbursement and helps to drive out the trouble.
- Paperless application – If you think that when you wish for a short-term loan, unlike other loan applications, there is a need to fill up 10 pages long physical form, then it is entirely wrong. The main reason for such a quick process is its paperless application. All you need is to visit any trusted website of a lending company. Look for their application form, and by filling up a small form, you can complete your application.
- Less background verification – Why short term loan is the most popular one among others? To find out the answer, we discover another attractive factor about this loan. Many people who are unprivileged and opt for small installment loans. For bad credit scores, they remain unable to get long-term loans or even personal loans.
A credit score is the most critical factor that is considered every time before sanctioning a loan. But lenders who provide short-term loans make it easy to get monetary assistance from those who can’t ever be eligible for either long-term personal loans or business loans for bad credit scores. Due to less background verification, the chance of getting funds becomes increased.
- The amount is adequate for mitigating urgent demand – Although a short-term loan generally provides the facility of borrowing a small amount of money, it is sufficient to meet the urgent requirement. In the UK, a short-term loan lender usually lends up to £10000 starting from £500.
- Doorstep money service – This type of loan comes in huge varieties. A doorstep loan is one of them. People who have certain disabilities or suffering for any serious disease they can enjoy such doorstep money lending service. In that case, a borrower needs not come out of his house, but the service provider reaches his destination with borrowed money.
Varieties of short term loan:
It comes in different varieties which suit the need of various people.
- Working capital loan – To arrange money for working capital, a trader needs to carry out a series of hazardous situations. Without asking for advance payment from your client, you can also look for a short-term loan. It helps a lot in producing goods, and after completing a certain quantity of products now, you may ask for half payment.
However, a working capital loan helps in arranging funds for pre-production costs. There will be no scope for long time repayment to quickly repay the entire amount when the client pays against the order.
- Line of credit – It is more like using a credit card than borrowing a loan from a lender. Generally, trading persons opt for such a line of credit as at different stages they need funds. A particular limitation is set for the borrowers, and the loan amount should not exceed that specific credit limit.
With systematic monthly installments, a businessman can repay the entire outstanding. Therefore, the amount to be paid as repayment entirely depends upon how much credit limit has been exhausted. There is no additional charge applicable for opting for credit lines, which usually doesn’t happen with a business credit card.
- Payday loans – It is quite popular among most people because of its simple application process and same-day disbursement. Although there is no necessity for monthly or weekly repayment and this loan has a significant downside. The payday loan borrower needs to repay the entire outstanding amount along with interest within one shot, i.e. on the final ‘payday’.
- Small instant loans – Among other types, installment loans are also popular among borrowers as it helps the borrower mitigate urgent requirement at once. The entire process can be done online, and the loan can be approved within few seconds.
- Billing finance loan – This type of loan also provides a person, especially a businessman, to arrange for money whenever needed. Actually, lenders used to sanction loan amount against the bill generated for clients to pay when the client asks for more time to pay the billing amount. A seller can arrange for money by showing the pending invoice amount to the lender.
The discussion mentioned above is not difficult to understand how short-term loans can benefit a borrower. Here is mentioned some other benefits of it.
- Low rate of interest applicable – With 12 month loans or short-term loans, the borrower needs not to pay a high interest rate. The repayment period is not much longer, so there is no chance of paying huge interest added to the principal. In comparison with long-term loans, though the rate of interest is deemed less, it is not true.
The borrower has to repay several consolidated rates to lengthy repayment period, which he needs not pay while repaying dues against short term loan.
- Fast processing – Another advantage of the short-term loan is its quick processing. Due to less paperwork and the commitment of same-day disbursement, the amount is credited to the bank account within few hours of application. Such fast processing helps in especially medical emergencies and also several other urgent requirements.
- Low-risk level – Although you opt for a high amount, it is impossible to sanction above 10000€. The short-term loan never sanctioned above the mentioned amount. While borrowing a considerable amount may put a borrower at high risk, a small loan will minimize the risk factor.
Even if you lose your source of income it will be not that difficult for you to arrange for a small amount of money. Therefore, defaulting risk is lower than a long-term loan.
- Easy to sanction – Generally, lenders will not ask for many documents except the necessary ones during the sanctioning of short-term loans. For this reason, there is no worry even if you have a bad credit score or don’t possess a secured source of income. The borrower needs not to satisfy a lender by achieving all the eligibility criteria.
- A small amount can mitigate your need – With a long-term loan, there is no scope for borrowing a small amount of money. But if you opt for a kitchen installation or want to arrange money for a small get-together, this type of short-term loan is way better. Over borrowing always leads towards overspending. But with small installment loans, you can get the scope of staying within budget.
Short term loan vs. long term loans:
The main difference between short-term and long-term loans is the same-day loans from a direct lender, whereas it is impossible for a long-term one. As a long-term loan is associated with a huge amount of lending, for this reason, the lender continuously checks for several factors and makes sure the borrower is eligible or not for borrowing such a huge amount.
While no background verification is carried out before sanctioning a short-term loan, there is detailed background verification, especially previous repayment history, before sanctioning a huge loan amount. Credit score plays a vital role in a long-term loan. Eligibility majorly depends upon the credit score. But with a short-term loan, even a person with a bad credit score also provided monetary assistance.