A short-term loan is temporary financing acquired to meet working capital, personal or business needs. They’re repaid quickly, usually within a year or less. The amount approved for a short-term loan varies depending on the lender.
You can find short-term loans in non-banking financial and banking institutions. These loans can be found online or in brick-and-mortar facilities. Different people take short-term loans for varying reasons. This article discusses seven reasons to consider a short-term loan.
1. Multiple loan options
There are multiple short-term loans borrowers can choose from depending on their needs. Short-term loans get you sorted if you have no credit or poor credit. Short-term financing has options suitable for first-time borrowers, those trying to avoid mainstream lenders, and more. Short-term loans may include the following:
- Payday loans: These are small loan amounts normally repaid in one payment on your following payday or once you get income from a different source. Payday loans, including weekend payday loans, depend on your earnings, so you must present a pay stub when applying for one
- Line of credit: This kind of borrowing is pre-approved and lets you access funds when you need it, meaning you don’t have to withdraw all of it at once. You can use a line of credit to finance home improvements and fund an expensive vacation then repay it monthly. The loan can be secured or unsecured. Line of credit loans can include personal line of credit, home equity line of credit, or business line of credit
- Invoice financing: It involves your business borrowing against its accounts receivables to get cash faster. This can enable a company to boost cash flow, reinvest in growth and operations, and pay suppliers and employees sooner than when they had to wait for the invoices to be cleared, including financing of accounts receivable.
2. Short-term loans are unsecured
Short-term loans are unsecured, meaning they don’t need collateral. They don’t rely on your assets as security. Unlike their secured counterparts, where lenders require an asset as collateral before approving your loan, you don’t have to worry about risking your assets if you default. Your eligibility for the loan is decided based on other factors, including having a guarantor, hard credit checks, or your credit score. This makes short-term loans perfect for those with nothing to give as collateral.
3.It doesn’t involve a long-term commitment
Long-term borrowing requires a long term commitment, which can be challenging. If you cannot manage the well or make timely repayments throughout the period, you risk damaging your credit score and losing your valuable assets. Short-term loans eliminate the need for short-term commitments. Since the loan is repaid within a year or months, you only have to concentrate on the immediate future. Some short-term loans have repayment terms as short as one month, helping you move on quicker.
4.Low credit score requirements
Unlike other types of financing with stringent credit score requirements, short-term loans are less strict. Some short-term lenders only conduct hard credit checks to determine your repayment ability. Other lenders offer funding to people with poor credit or without credit.
5. Fast approval
Short-term loans require minimal documentation, including a loan application containing your personal details, proof of identity, income and employer verification, and proof of address. Since the paperwork isn’t time-consuming and the documents are submitted online, loans are processed within a short time, even within minutes, making the approval and application processes convenient and simple. Fast disbursal of money is crucial, particularly when handling financial emergencies.
6.To improve your credit rating
Short-term loans are a perfect way to enhance your credit rating. However, they should be repaid on time. Failure to make timely repayments negatively impacts your credit score and compromises your chances of accessing other forms of financing. Repaying your short-term loans on time shows you can take care of your obligations responsibly. This helps build and improve your credit score.
7.They’re multipurpose
Short-term loans aren’t restricted on how they should be used, meaning you can use them on anything. Your lender doesn’t require you to submit a comprehensive report detailing how you’ll use the loan. You can use a short-term loan on emergencies such as natural calamities, a damaged roof, car maintenance, medical bills, unexpected loss of income, and more. It can also be used for debt consolidation, business, and other needs.
Endnote
Short-term loans enable you to meet short-term financial obligations in a simple and convenient way. Familiarize yourself with the reasons to choose a short-term loan to determine if it’s viable.
