9 Advantages of Short-Term Loans that you should know

Introduction:

Whether as a business or an individual, we all face financial crunches from time to time. A short-term loan during such a period of financial struggles can go a long way. A short-term loan can be defined as borrowing money for a period of six months to twelve months.

Now, a business may need a short-term loan during low season sales, to meet daily expenses, to expand and grow, and more.

An individual, on the other hand, may need a short-term loan to cover an unexpected expense.

Whatever the case may be, following are the advantages of borrowing a short-term loan:

1) Quick Approval:

Short-term loans are usually acquired for quick cash to meet unforeseen expenses. Hence, one characteristic of short–term loans is that they’re approved rather quickly than long-term loans, which require a long application process before being approved.

2) Easy To Acquire:

For individuals and startup businesses who do not have an excellent credit score, and banks might not agree to lend long-term loans to them, short-term loans are a lifesaver.

Since short-term loans are not obtained for huge amounts, there is lesser risk and hence, are easily granted to people even with a poor credit score.

3) Lesser Interest Is Accrued:

As the name suggests, short-term loans are granted for short periods. As compared to long-term loans with lower interest rates that accrue interest over 10 to 30 years, you actually end up paying lesser interest on short-term loans.

Because even though the interest rate is high, you only pay it over a year or half, and end up actually saving money in the long run.

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4) Lower Interest On Mortgages:

Short-term loans do not usually have lower interest rates but in case of mortgages, several mortgage loans offer lower interest rates for short-term. This way not only do you accrue interest over a shorter period of time but also pay a lower rate of interest.

5) Comes In Handy During Emergencies:

Whether you’re a business or individual, short-term loans can save you from liquidity problems during emergency situations.

For a startup business, cash flow and capital means everything since the revenue isn’t generated up to maximum capacity. A startup business requires money to meet day-to-day operational expenses, or to even expand the business little by little.

In such cases, short-term loans are a lifesaver since they’re quickly available for you to face any liquidity problems the market will throw at you.

For an individual, short-term loan can “literally” be a lifesaver in case of unexpected medical expenses. If you or your family member needs urgent surgery, or someone you know meets with an unfortunate accident, and you don’t have a lot of savings on hand, a short-term loan can be obtained since it gets quickly approved.

6) Improve Your Credit Score:

The credit score algorithm is made such that obtaining short-term loans boost your credit rating. It is quite difficult to build up a credit score if you’re a startup business or have just moved to the US, and since no one wants to lend you money, you have no idea where to start.

So, short-term loans can be a way for you to start building up your credit score since some lenders are willing to grant you money but at higher interest rates.

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Once your credit score has improved, you can later easily obtain long-term loans and that too, on lower interest rates.

7) Predictability:

Short-term loans are acquired for a year or less. You are almost certain what your financial situation will look like in the next 12 months.

In case of long-term loans, you never know what your financial stability will look like in the next 10 to 30 years. However, for short-term loans, you can easily determine whether you’ll be able to pay back the lender with the current employment and income.

8) No Collateral Is Required:

Short-term loans do not usually require collaterals. Hence, you do not need to have a property or house to ledge as collateral to the bank for short-term loans.

9) Lower Stress:

Since short-term loans are paid off in a short time and you don’t have to live a decade or two of your life worrying about interest and principal payments, short-term loans comparatively cause lower stress than long-term loans.

Conclusion:

Short-term loans can be helpful for both businesses and individuals. It can be quite a convenient and helpful source of finance if you have the ability to pay back the loan on time along with the determined interest.

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