People acquire loans for various reasons – for personal use, for education, to finance a large purchase such as a home or appliances, for business or investments, or for emergency expenses. A loan is a huge commitment and responsibility therefore borrowers must seriously evaluate and weigh in on the pros and cons before deciding to procure a loan particularly for first timers.
Whatever your purpose for applying for a loan, you must understand that loans have different features in terms of eligibility, interest rates and repayment terms. If you are planning to get a loan, it is best to consider the benefits of short-term borrowing first for the following reasons:
Flexible Payment Tenures
Short-term loans are favorable for the flexible payment terms they offer. The term usually ranges between 3 months to a year only. This will offer much convenience depending on your payment capacity and with shorter tenure. Borrowers will have an option to make payments within the approved tenure.
Solution for Unexpected and Beyond the Budget Expenses
Applying for a short-term loan is ideal for any individual or entrepreneur who needs immediate funds. For small business owners who are not eligible for a bank loan or for those individuals who are facing an unexpected financial burden, they can borrow funds with little effort from short-term loans.
Build Good Credit Scores
Short-term loans have smaller risk factors and can be favorable for borrowers. Processing time for this type of loan is faster compared to long-term. Due to the nature of a short-term loan, borrowers can easily maintain a good repayment ability which will be constant over a shorter period.
Saves Money on Interest Penalty
With short-term loans, total payments for interest are much lower since it is within a short tenure. This loan option will allow savings with a lower interest rate applied over a short period of time.
Save Credit Card Spending Limit
Loans and credit cards both offer options to secure funds providing borrowers easy access and immediate credit. They may have similar credit requirements, but credit cards are totally different since they rely on revolving credit.
Short-term borrowing consists of a small loan amount that is available within a short period of time and is expected to be paid off within a year or less. Usually, it is considered if the person or the company is falling behind in payment, facing a minor loss, or is trying to accommodate another operational activity.
Because short term loans do not incur a huge interest and are easy to apply for, it is preferred by most people and businesses. You don’t need to present collateral and most lenders only require valid IDs and a bank account for the borrower to qualify. But just like any other type of loans, short-term borrowing must be taken seriously. It must be paid regularly because even if the amount of the loan is smaller compared to other types of loan, it can still cause bigger financial problems in the future, if taken for granted. Always be a responsible borrower by paying your loans on time or beyond what is required monthly, no matter how big or small the amount of loan is.