Short-term loans, as the name suggests, are small loan amounts that are provided to individuals for a short duration to fulfil any of their personal or professional financial requirements. In India, the most popular option in the recent past has been the personal loan. However, there are other short-term loan options that you should consider. The following is a list of some short-term loan options:
A personal loan is a type of short-term, unsecured loan that can be easily availed from a bank or any other financial institution. Personal loans are a popular option for a number of individuals since they do not require any collateral to be sanctioned. The loan amount for which the applicant is eligible varies based on their monthly income and repayment capacity. The tenure of repayment of a personal loan ranges anywhere between 12 months and 60 months. The borrower does not have to disclose their reason for obtaining a personal loan and can use it as per their choice. Most banks and financial institutions offer a minimum loan amount of Rs.30,000 and the maximum amount varies based on the applicant’s monthly income. Since personal loans are unsecured loans, the interest charged on the amount borrowed tends to be much higher than secured loans. However, factors such as the borrower’s credit score and repayment history also play a role in determining the rate of interest charged. Additionally, the duration of the loan tenure also affects the rate of interest charged. Loans that have a longer repayment schedule have a higher amount paid in interest as compared to loans with shorter repayment tenures.
A payday loan is another short-term, unsecured loan that is offered based on the applicant’s monthly income. The principal for the loan amount is based on the borrower’s monthly pay. With payday loans, the cash disbursement is almost instant. Lenders usually offer amounts that are considerably smaller than those offered for personal loans. The rate of interest charged on payday loans are fairly high. Similar to personal loans, payday loans do not require a lot of documentation. Applicants are required to submit their PAN details, bank account information and a copy of their most recent pay slip. The repayment tenure for most payday loans ranges between 30 days and 90 days.
A number of banks offer their credit cardholders the facility for availing a loan against their credit card. This is different from the cash withdrawals that are permitted against the balance in the individual’s credit card. The interest charged on loans against credit card is a bit lower than those charged for cash withdrawals. Additionally, the loan amount on the credit card is higher than the credit limit of the credit card. The process of obtaining a loan against a credit card is hassle-free. The applicant is not required to submit any documents for approval and the amount is disbursed in a very short duration.
Demand loans are a type of short-term loan that is particularly useful in cases of emergency. With these types of loans, banks and other lending agencies offer loans against the borrower’s insurance policy or small saving schemes. The loan amount provided is based on the maturity value of the instrument against which the loan has been taken. The loan amount that has been sanctioned is usually 70% to 90% of the value of the savings instrument.
A bridge loan is a type of loan that is usually taken when there is a short-term requirement of cash during the tenure of an active loan. The loan provides the borrower with liquidity in times of need. For instance, individuals who are looking to purchase a home and have applied for a home loan but do not have the funds to make a down payment on the property can apply for a bridge loan. Additionally, a bridge loan can also be taken as a top up for an existing loan. Bridge loans usually come with a maximum tenure of 12 months and the interest rates charged on the sum borrowed tends to be on the higher side.
Individuals who contribute to the Public Provident Fund (PPF) have the facility of availing loans against their account once they have completed 3 years of contribution towards the scheme. However, the loan facility is available only until the 6th year of contribution. The loan amount is limited to 25% of the balance available in the PPF account. The repayment schedule for loans taken against a PPF account is slightly different than those of other short-term loans. The borrower is first required to pay off the principal amount followed by payment of interest in 2 monthly installments. The repayment of the loan can be made in installments or in a lump sum amount. The maximum tenure of a loan taken against a PPF account is 3 years.
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