Finance

Types and rates of best short term loan and how it works?

A short-term loan features a loan repayment tenor of 1 to 2 years. Borrowers can easily cover any immediate financial gap with this credit. However, they may need to bear a higher interest rate on this loan. This article presents the best short-term loans offered by lenders in India. Read and compare each of them to make an informed choice. 

What are the five best short-term loans in India? 

Willing applicants must take a look at the list of short-term loans mentioned below: 

Trade credits 

Trade credit is one of the most affordable credit facilities that help one to obtain the necessary funds. Borrowers can avail of this interest-free short-term loan to purchase goods without paying upfront and pay the supplier later within the scheduled date. Lenders often offer a repayment tenor of 30 days. However, individuals can negotiate for a longer tenor as per their requirements. This is a viable commercial financing option to fund the immediate business requirement and facilitate business growth.  

Overdraft facility 

Financial institutions allow individuals to withdraw funds above the existing balance in their current accounts in an overdraft facility. For this, individuals need to have a sanctioned overdraft facility. The interest rate applies to the outstanding overdraft amount. Individuals may find this interest rate lower than the applicable interest rates on loans borrowed via credit cards.  

Knowing what an overdraft loan is, helps you consolidate your debt and maintain positive working capital in a business.  

Demand loans 

Demand loans are one of the viable options to meet immediate financial needs. Individuals or businessmen both can apply for this credit. Borrowers must pledge their assets to secure this credit. Individual borrowers may submit their insurance policies, NSC, fixed deposits as security to obtain the fund. People in business may pledge their invoices, receipt of account receivables, etc. A specific percentage of maturity value on the pledged assets determines the overall loan amount one can borrow. Individuals can meet their financial requirements and manage cash flow in the business with this short-term loan.  

Bridge loans 

Bridge loans are one of the most viable options, especially when individuals lack the necessary funds while buying a new property. This is applicable when the sale of the existing old property is still under process. Individuals can leverage this additional time to borrow this credit and make the down payment while waiting for a potential buyer to purchase the old property. These loans fetch a high-interest rate despite being secured as borrowers need to pledge the property to acquire the funds.  

Personal loans 

A personal loan comes with no end-use restriction. Individuals can apply for a personal loan without pledging any asset and use it to meet any requirement – medical emergencies or home renovation. Despite being a high-interest credit option, this loan in India witnessed a 13.5% Y-o-Y growth in 2021. This implies a significant demand for this short-term loan to meet the immediate liquidity crunch.  

Moreover, selected NBFC personal loans at a competitive interest rate. Individuals can also enjoy pre-approved offers, streamlining the process further. Willing applicants can check their pre-approved offers by entering their name and contact number.  

Payday loans 

In this, the lender determines the loan amount based on a borrower’s income. Individuals need to repay the dues after receiving their next paycheck. This short-term credit attracts a substantial amount of interest rate.  

What are the three advantages of a short-term loan? 

Apply for a short-term loan to enjoy the following benefits: 

  • Short-term loans feature shorter processing of loan applications. Hence, eligible candidates can quickly get their loans approved and fund their requirements.
  • Short-term loans, such as personal loans, can help one consolidate existing debts and improve his credit score. 
  • Most of the short-term credit options mentioned above are unsecured. Hence, individuals do not need to risk their collateral to secure a sizeable fund.  

Thus, individuals can choose any of their preferred types of short-term loans in India mentioned above. Remember to check the documents required and eligibility criteria before choosing a lender for a short-term loan to avoid hassles later.  

 

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