Short-Term Loans – What They Are & When to Use Them

If you’re in a financial bind and in need of financial assistance immediately, you’ll most likely turn to a short-term loan to get you through. A short-term loan is not a loan in itself but an umbrella term that describes loans that are generally due within 30-days. The payment period will practically define the amount of money that you will be able to borrow from a given company. For short-term loans, the amount usually ranges from $ 100 to $1000. However, some loans, like car title loans, which are categorized as short-term can extend pass a year in payments. This is why short-term loans are mostly preferred for covering emergency and small expenses. If you are in a critical financial situation, this guide may help you determine whether a short-term loan is right for you.

Overview

Short-term loans can be applied either for business needs or for personal needs. In the former case, personal loan covers any kind of emergency and personal expenses that occur between health care, paychecks, educational bills, and even for vacation expenditures. Short-term loans are also perfect for small online startup businesses or funding for brand new projects or any kind of emergency expenses.

Generally, the terms for such short loans vary from company to company except for one thing – their interest rates which are quite high. Assuring customers with a sure loan on such short notice comes with a high risk. Such fast approval processes are quite alluring, however, this type of loans come with tricky pitfalls. One way for you as a borrower to be able to avoid getting into such traps and pitfalls is to make your payments on time without trying to skip or delay them. If you’re in the market for an online title loans, you may even risk the ownership of your vehicle if you don’t pay on time.

When to Use Them

Many small businesses benefit highly from short-term loans by using the loans to pay for an expanding service or product lines or handle unforeseen shortages on short-term cash. Always assess the reasons why you need such type of loans before you approach any short term lending company. Also, determine the type of funding that will suit your needs perfectly.

Here are some situations for which opting for a short term loan would be beneficial for you or your company.

RESOLVE EMERGENCY CASH FLOW PROBLEMS:

If your company is facing uneven or cyclical cash flow structure, applying for a short term loan would be able to help you resolve the problem without causing much of an issue. For instance, if a company or business is finding it difficult to get funding for their supplier bills and other similar expenses, than seeking financial help from a short term loan company would be a healthy way to bridge the gap.

EASING THE SEASONAL TRENDS

Keeping up with seasonal trends can be quite taxing on small businesses. Short term loans are a great option for such emergencies. For instance, most of the businesses today require additional staffing and capital during the season of the holidays. Seeking help from a short-term loan helps a business to be able to cover a sizeable portion of its costs especially when it prepares for any upcoming holiday shopping rush.

EMERGENCIES

Unforeseen financial emergencies are quite normal for any type of business during any period of the year. Businesses that are challenged with problems like computer crashes, equipment breakdowns or even natural disasters can quickly fix the problems by seeking short term loans which can be procured in a matter of day or two.

Pros of short term loans:

•    Certain borrowers may appreciate the fact that they can quickly pay off their financing debts since most of the short term loans have the tendency to mature in just a matter of a year or less.

•    For businesses with a low rating for credits, they can quick access a short-term loan that can be effectively used to build their score.

•    Borrowers will be able to see an impact on the credit score of their business if the short term loans mature in a matter of just a few months.

•    The rates for short term loans have a tendency to drop when a given economy undergoes a recession.

Cons of short term loans:

•    A major disadvantage of short term loans is the high interest rates.

•    In any healthy economy, short term loans normally have higher interest rates as compared to their long term loans.

•    Lenders set the loan rates by starting with the given prime interest rate, and then a premium is added based on the level of risk that is associated with the borrower’s company.

Short term loans have become a common method for financing business ventures. You should always research different loan options available in the market that will help you to determine the type of lending which would suit your requirements.

References

https://savingadvice.com/articles/2018/01/20/1053963_online-title-loans-new-wave-internet-spam.html

https://www.magnifymoney.com/blog/personal-loans/are-long-term-personal-loans-ever-a-good-idea/

https://www.thesimpledollar.com/when-you-should-and-shouldnt-use-a-personal-loan/