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    Short Term Loans

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    What are Short Term Loans?

    Short Term Loan

    Short Term Loans in India

    Short term loans are loans which essentially provided for a short tenure of less than one year. These are usually one time loans and can come in useful in case you are not able to obtain credit from a bank for a longer tenure loan. In case of these loans, the interest is usually payable on the principal advance amount and repayment tenures are shorter as compared to other types of loans.

    These loans are also made available to customers and businesses and may be provided by private finance companies or banks. These loans are generally unsecured however in case they are being offered by banks, they may require that you secure these loans with some collateral. Short term loans are also referred to as short term finance or short term instalments loans because they can be paid back in monthly instalments.

    Features of the short term finance

    Short term loans come with features that may differ from one lender to another. They may also differ when it comes to comparing short term loans in the US vs those in the UK. Some of the features of the short term loans are:

    • You can apply for short term or payday loans as an individual or as a business.
    • Though some companies may choose to approve your application based on your credit history, there are those that will give loans to even those with bad credit histories.
    • It is possible to apply for these loans online with minimal paperwork involved.
    • They can be approved and issued in a day’s time depending on the company’s policy.
    • They can be secured or unsecured depending on the lender offering the loans.
    • Some banks offer short term loans, the repayment period for which can range from 60 days to 120 days. That’s a repayment period of approximately 4 months.

    Interest rates for short term loans

    Since short term loans can be payday loans or Personal Loans payable within 12 months or less the interest rates may differ. Another factor that affects these interest rate is the institution that offers these loans.

    • Payday loans: short term payday loans are offered by private lenders or banks and come with very high interest rates that can easily top 2000% per annum. There are lenders who offer lesser interest rates however these too could be as high as 400% per annum.
    • Short term loans from banks: These are loans that are offered by banks and come with interest rates that are not as high as those of the payday loans offered by private institutions. A rough estimate of these interest rate would show a range of 120% to 270% per annum.

    Short term loans with bad credit history

    Many a times, the borrower may be in a position where most lenders have refused to issue loans to them as a result of bad credit history. There are financial institutions that will offer loans even if the credit history is bad. The interest rates may be higher but the loan will still be approved. There may even be situations where bank will approve a payday loan for an individual with a bad credit histories and adjust the interest rate according to how bad the history really is, among other factors.

    Short term loans with no credit checks

    At times institutions may offer short term loans to individuals without carrying out any checks of the credit history. This is a facility that is provided at the discretion of the institution. These short term loans can also be extended to companies that need money to meet their financial obligations and don’t have a line of credit extended to them by their banks. There may even be times when these short term cash loans can also be availed by students who are finding it difficult to meet their payments for rent or tuition fee.

    Short term loans from banks vs private lenders

    Going in for a short term cash advance is a decision that should not be taken lightly. If you do decide to take a short term loan you must then decide if you intend on taking it from a bank or a private lenders. So let’s take a look at banks and private lenders match up to one another for these loans.

    • Interest rates: Banks tend to have cheaper interest rates compared to the interest charged by private companies. This difference can be quite considerable at times when banks charge interest of 36% and private companies charge anywhere up to 2,000% per annum for short term cash loans.
    • Easy approval: There are times when someone applying for a short term instalment loan may not have a strong credit history. In such a case they are most likely to be reject for a loan by most banks however, private finance companies will still provide loans to them.
    • Fast loans: The paperwork required for these loans is typically minimal however private companies offer the convenience of approving the loan and issuing the funds within a few house. This means that you get access to money faster than you would if you were to apply to a bank.
    • Regulations: Banks tend to have stiffer regulations about who can apply for these loans which tends to eliminate a number of would be borrowers. Private companies, on the other hand, do not have stringent regulations making them easier to apply for.

    In general, short term loans or payday loans should remain an absolute last resort because they tend to be very expensive. Even if you must take one, make sure you take only the amount that you need and no more.

    While in the US and in the UK you have the option of short term finance, in India this option is not available. What is available in India is slightly different.

    Short term finance in India

    In India, loans that come with interest rates in excess of 100% are non-existent. What is available are a variety of short term loans that are meant to help you with your personal finance as well as finance for your companies. These short term loans come in various forms like personal loans, short term loans for SME and even short term Bridging Loans for individuals buying a house.

    These loans too tend to be secured and unsecured depending on the type of loan you take, which also decides the interest rates that you will be required to pay. The loans are provided by banks and non-banking financial companies

    Types of short term loans in India

    There are various loans that you can take and payback in a year’s time in India. They range from personal loans to loans for business.

    • Personal loans: These are loans that can be taken by salaried and self-employed individuals and can be to the tune of Rs. 30 lakhs depending on the bank or company you approach for the loan. These loans can be paid back in period that range from 6 months to 5 years and typically come with interest rates that are higher than other loans. The advantage of these loans is that they are no restrictions on what you use the money for and are generally issued quickly, in a period of 48 to 72 hours, and require minimal documentation.
    • SME short term loans: These are loans that are extended by banks to companies that need to take loans to meet their immediate requirement for funds. There are certain eligibility criteria that are defined by the banks which companies must meet in order to avail this loan. For example if you were to go in for this loan from Bank of Baroda the eligibility criteria would be as follows.
      • The company would be required to have a minimum annual turnover of at least Rs. 150 crores.
      • It would also need to have a credit rating of BOB 5 or above.
      • It will be required to provide the latest balance sheets and show good financial performance where negative variance is no more than 10%
      • They will also need to have a good relationship with the bank for at least 3 years.
    • Bridge loans: These are loans that can be taken to tide you over till you can get another loan. In India, these loans are associated with transactions related to the buying and selling of property. How it works is that if you want to buy a new house, have found the perfect one but don’t have the funds to purchase it because the old house hasn’t been sold yet, you can go in for a bridging loan that will let you buy the new house while you wait for the old one to be sold. These loans can also be taken by companies against expected returns or even while a company waits for their funding to come through.
    • Demand loans: These are loans that can be provided by banks or NBFCs to meet any urgent financial demands that you may have. They can be secured loans wherein you provide savings instruments like insurance policies and NSCs to take the loan. The amount that you can borrow will be determined by the maturity value of your savings and will be a certain percentage of said maturity value. The loan could range from 70% to 90% of the surrender or maturity value of the savings instrument.

    Eligibility criteria for short term loans

    The eligibility criteria for these loans changes for each loan. It is different when it comes to bridge loans and personal loans. With SME Loans too, the eligibility criteria will differ since they can be taken by companies rather than individuals. A general criteria for these loans could be:

    • For individuals
      • The applicants need to be salaried or self-employed.
      • They will need to have a monthly income that is above a certain amount. A rough estimate could be Rs. 8,000 per month but this figure is subject to the bank’s policies.
      • They will be also need to be between the ages of 21 years and 60 years, again subject to the policies set forth by the bank.
      • The approval of the loan may also depend on the ability of the individual to provide all supporting documents.
    • For companies
      • They may need a past relationship with the bank.
      • They will need to be in a position where the business is making money or has been do so in the past 2 years or so.
      • They may also have to be in operation for a specified period of time and have a specified annual revenue to qualify for the loans.

    Interest rates for short term loans

    The interest rates charged for these loans depends on the type of loan you go in for. For example Personal loans come with interest rates that can range from 12% per annum to 20% per annum. Some banks offer SME short term loan at interest rates that range from 12.5% per annum to 14% per annum. HDFC offers Bridging loans for 12.55% per annum to 13.4% per annum.

    The advantage of these short term loans offered in India are that they are tailored to suit everyone’s specific needs. If you need to finance a vacation you can go in for a personal loan, if you want to buy a new house after selling your old one you can go in for a bridging loan. Even if you need to finance a company you can go in for a bridging loan or an SME loan to ensure continued operations.

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