Typically, it becomes challenging for an individual to satisfy his modest financial demands for vacations, weddings, purchasing used two-wheelers, or any other necessities. It is not a good idea to borrow money from friends and family since it will eventually sour the bonds between them. On the other hand, you cannot take on a significant personal loan obligation to meet little financial necessities. So, your only choice is to apply for a short-term personal loan. A loan taken out for a duration of less than one year is referred to as a short-term loan, as the name implies. Both the borrowing amount and the repayment time are small and swift.
What is a Short Term Loan?
An individual’s immediate financial need is temporarily met by a short-term loan. Brief-term loans have a short duration, as their name indicates, and borrowers must return them within a specific time frame. For short-term loans, five years is often the maximum payback duration. Additionally, the majority of short-term loans are unsecured, therefore no security is often required in order to obtain funding. As a result, short-term loans are also simpler to get than traditional loans for minimal financial needs.
Short term personal loans are often defined as personal loans with a duration of one year or less. However, various lenders may have varying definitions of short-term personal loans. While candidates for short-term personal loans are required to make larger EMI payments, there is less interest paid overall. Short-term personal loans are therefore frequently the best option for smaller loan amounts. Borrowers often receive their loans faster from lenders who conduct loan applications and approvals through digital means.
Documents Required for Short Term Loans
To sanction a short term loan, the following documents are required:
- Proof of identification
- Proof of age
- PAN card
- Address proof (Driver’s license/Voter’s ID/Passport/Electricity bill or Phone)
- Income proof
- Recent coloured photographs
Features of a Short-Term Loan
- You can obtain short-term loans without putting up any collateral.
- Applying for a short-term loan requires fewer pieces of paperwork.
- You may create your own payback schedule for many short-term loans thanks to flexible payment options. Long-term loans often have a defined payback schedule.
- A short-term loan is simpler to obtain, and you may do it through an entirely online approach using applications like Navi.
- Short-term loans have an expedited approval and disbursement process.
- Short-term loans have a tendency to be used for more personal purposes than long-term loans.
- Short-term loans allow you to borrow money, which may then be immediately credited to your bank account for use anyway you see fit.
- You may use short-term loans and raise your credit score by repaying them on time.
How do Short Term Loans works?
Unlike typical loans, short-term loans have a limited payback duration, such as one year or less. Additionally, a borrower’s creditworthiness is a major factor in whether these loans are approved. How these loans function is explained in the following details:
- To apply for short-term loans from banks and NBFCs, borrowers have the option of doing so online or offline.
- Banks and NBFCs carry out a background investigation and determine the borrower’s creditworthiness based on the supplied documentation.
- If a borrower’s profile is deemed suitable by a lender, their loan request will be approved. However, while sanctioning loans, banks and NBFCs would adhere to their rules and regulations. To achieve hassle-free approvals, borrowers should carefully review these terms and conditions.
- Banks will approve a short-term loan if you accept these terms and conditions. Additionally, within 24 hours, borrowers will often get their loan amount in their accounts.
Short-Term Personal Loan Eligibility Requirements
You must be qualified to receive a short-term loan. You cannot obtain short-term loans if you are not eligible. Therefore, before applying for short-term personal loans, you must review the qualifying requirements that you must meet.
- You should be at least 21 years old.
- Individuals who are salaried or self-employed may be eligible for a short-term loan, however eligibility varies from application to application.
- You should have a consistent source of income that brings in more than INR 12000 per month.
- A Cibil Score of 600 or above is required.
- The candidate must be familiar with how to utilize the mobile phone’s application.
Benefits Of Short-Term Borrowing
The benefits of Short-Term Loans are as follows:
1. Possibility of Microloans
When borrowers need quick cash, they do not always have to choose traditional loans. Small loans are fairly simple to obtain thanks to short-term loans.
2. Loans without Security
Since short-term loans are frequently unsecured, borrowers are not required to provide any kind of collateral.
3. Quick Approval
Short-term loans are promptly approved by lenders when the necessary paperwork are verified, unlike the usual loan application process.
4. Less Dangerous Loans
These loans are less hazardous for lenders than standard loans because of their speedy payback.
5. Comparably Low Interest
Short-term loans come with a limited payback time, so the borrower doesn’t have to pay a lot in interest.This is particularly true if the borrower repays the loan quickly.
Drawbacks of Short-Term Loans
Along with the aforementioned benefits, short-term loans also have the following drawbacks:
1. Small Loan Amount
There is a little fee associated with this kind of financing. These are solely intended to meet immediate requirements.
2. High Interest Rate
Short-term loans have high interest rates because of their short terms and demand for quick cash. For debtors with low salaries, meeting them might be challenging.
3. This isn’t for people with bad CIBIL scores
CIBIL scores demonstrate a borrower’s creditworthiness. As a result, applications with low CIBIL scores are frequently rejected by traditional banks and financial institutions. This makes it difficult for a population with a low CIBIL to obtain credit.
Why not a Credit Card instead of a Short-Term Loan?
Many individuals believe that using a credit card might be a more advantageous way to handle financial emergencies. However, you should be aware that if you don’t pay your credit card account on time, you will be charged a hefty interest rate. But the other. You won’t receive a credit card with a very high limit if your salary is less than INR 20,000. Therefore, a short-term personal loan would be a preferable alternative with such a paycheck since you may borrow a sizable sum of money and take care of your financial obligations. When you convert the amount of the short-term loan into cash, there are no additional fees, unlike when you withdraw cash using a credit card.