5 Types of Short-Term Loans in India
1. Trade credit
Trade credit is one of the most popular and affordable sources for acquiring interest-free funds. Individuals can conveniently avail of trade credit when any lender offers them the time to clear the invoice of any purchase without incurring any additional charges.
In most cases, trade credit is extended for 1 month or 30 days. However, borrowers can request the lender to offer a longer tenure as per their financial plan. Having a flexible repayment tenure facilitates individuals to leverage extra time and funds to finance other initiatives.
2. Bridge loans
Another popular variant of short term loans is a bridge loan. Bridge loans facilitate individuals to tide over until they acquire more funds from another loan.
Bridge loans become very important if the transactions are related to any type of property. Let us consider an example. If a person wishes to purchase a new house but they do not have sufficient funds because their old house has not been sold, they can avail of a bridge loan during the waiting period.
Opting for a bridge loan offers two-pronged benefits to borrowers. Firstly, it offers individuals the funds required to buy a new house while waiting for another loan to come through. Secondly, it helps in getting a beneficial deal in the old house.
3. Demand loans
Demand loans facilitate individuals to fulfil any urgent financial obligation instantly. All a person needs to do to acquire a demand loan is pledge saving instruments such as insurance policies in lieu of the demand loan.
A specific portion of the loan’s maturity value on saving instruments like NSCs will determine the loan amount they receive.
4. Bank Overdraft
A bank overdraft refers to a facility that individuals can avail of on their current bank account. Individuals who avail of the overdraft facility have the option to withdraw money from their bank account even if the account balance is zero. In simpler words, it facilitates individuals to borrow money within a pre-set sanctioned overdraft limit.
Like other loans, an interest rate is charged on the outstanding overdraft balance. However, borrowers of this variant of loan should be aware of the additional costs and charges attached, such as fees per withdrawal.
5. Personal loans
As the name suggests, a short term personal loan refers to a kind of short term loan using which borrowers can fulfil personal financial needs like house renovation costs, wedding expenses, higher education costs, etc.
Multiple lenders offer personal loans depending on the applicant’s level of income, employment history, credit score, etc. As opposed to other types of loans, such as a car loan, or a home loan, a personal loan is not deemed a secured loan, i.e., the borrower does not need to pledge any security as collateral to acquire a personal loan.
Most personal loans feature a flexible tenure that ensures easy repayment and offers a high amount of funds, which is one of the main reasons personal loans are preferred by the masses over other loan types.
Features and Benefits of a Short-Term Loan
Flexible end use
Short term loans are deemed multi-purpose loans because they can be used for different purposes, such as wedding organisation, taking a trip with family members, renovating a house, financing education, purchasing electronic goods or furniture, etc.
- No collateral needed
Most types of short term loans, including personal loans, are unsecured, meaning that borrowers do not need to pledge any security as collateral to acquire the loan amount. This feature of short term loans makes it easy for customers with no security instruments to pledge to acquire short term loans.
- Minimal documentation
The process of acquiring a short term loan comprises of minimal paperwork. This makes the process convenient and hassle free.
- Quick disbursal
Compared to other long term loans, short term loans are disbursed comparatively quicker. This is mainly because individuals do not need to provide security as collateral or undergo a complicated documentation process.
- Loan amount
The loan amount of a short term loan starts at INR 5,000 and goes all the way up to INR 3,00,000. The customer can use the loan amount to fulfil financial obligations.
As their name suggests, short term loans feature a short tenure. The tenures of short term loans range between 1 month and 12 months.
How does a Short-Term Loan Work?
To acquire a short term loan, individuals need to choose a suitable online or offline finance platform and provide basic details (KYC) as per RBI guidelines. Then, they need to submit multiple income-related documents and bank statements of the last 4 months.
Once the application is filled and submitted, the lender will do a credit assessment for loan approval and disburse the sanctioned amount on the same day. Borrowers can start repaying the borrowed loan amount in the form of EMIs through the lending outlet or platform’s automated mechanism.
Why Choose Yubi for Getting a Short Term Loan?
When it comes to a trusted digitised corporate lending platforms in India, Yubi Loans stands at the top of the list. The famous corporate loan marketplace is popular for featuring over 750 reputed lenders, each of which offers the best terms and benefits to users. To date, the online platform has disbursed loans worth over Rs. 10,000 crores. With over 300 active borrowers, Yubi Loans is the perfect outlet for individuals who wish to acquire any loan, including short term loans, overdraft loans, etc.
Eligibility for Short Term Loans
To acquire a short term loan, applicants must fulfil the following criteria:
- They should be at least 21 years old.
- They should either be a salaried employee or self employed individual to acquire a short term loan.
- They should have a stable income source which helps them earn at least Rs. 12,000 every month.
They should have a CIBIL score of 600 and above.
Documents needed for Short-Term Loans
Any individual who wishes to apply for a short term loan, either through an offline financial institution or an online outlet, must provide the list of documents required by the lender. Some common documents that most lenders require include:
- Aadhaar card
- PAN card
- Passport-sized photograph
- Salary slips
Bank statement or income tax returns.
Fees and Charges Short-Term Loans
Here are the different types of fees and charges associated with short term loans:
Like all other types of loans, short term loans also feature interest rates. The rate of interest charged varies from lender to lender.
Late Payment charges
If the borrower does not pay the borrowed amount’s EMI on time, they need to pay a late payment fee to the lender.
If the overdue loan amount is cleared late, the borrower has to pay penalty interest to the lender. In the majority of cases, the penalty amount increases after each passing day.
How to Apply for a Short-Term Loan?
There are multiple ways following which interested individuals can apply for a short term loan. Here are the two most commonly-used ways:
Individuals who wish to acquire a short term loan can choose an online credit platform that offers short term loans and follow the instructions stated on the website to apply for the loan. After filling out the application form, they need to provide the required documents by uploading their soft copies. The list of documents generally includes Aadhaar card, PAN card, bank statement, etc.
Almost all major online lending platforms have a dedicated application using which individuals can apply for a short term loan without hassle. Similar to the online method, users need to fill up and submit the virtual application form and upload soft copies of documents. Once the application is approved, the loan amount will be credited to the applicant’s bank account.
Repayment Options for Short-Term Loans
Different platforms offer different repayment methods when it comes to short term loans. For instance, some lenders offer borrowers the option to repay the loan amount through UPI or net banking with NEFT or IMPS using the virtual account. Besides this, there are numerous lenders which feature the auto-debit option.
Determining which short term loan variant is the best option depends entirely on the borrower’s needs. For instance, opting for a personal loan is the best option if they wish to cover personal expenses. On the other hand, if they wish to buy a new house while waiting to sell their older one, a bridge loan is an excellent option that individuals can opt for.
There are multiple online lending platforms using which individuals can apply for a short term loan. All they need to do is fill up an application form, submit soft copies of documents, and wait for the loan amount to get credited to their bank account after approval.
Yes. If borrowers miss or exceed the repayment tenure, their credit score goes down.
Opting for a personal loan is a subjective requirement. For instance, if any individual needs less than Rs. 5,00,000 as the loan amount, opting for a short term loan makes more sense.
No. Short term loans do not require borrowers to pledge security instruments as collateral.
Yubi is an excellent application that individuals can use to apply for a short term loan.
Any individual who wishes to get a short term personal loan quickly should apply for one using instant personal loan applications.
Some of the most popular platforms which offer short term business loans include Yubi Loans, Early Salary, MoneyView, etc.
Borrowers can repay the borrowed amount through EMIs via UPI or net banking options.
Most financial institutions offer short term loans featuring tenures of up to 2 years.