If you plan to borrow money, it is always good to search and compare different types of loans to decide which one is the best fit for you. Financial institutions offer several types of short term loans and each comes with its terms and conditions.
If you are new to the financial industry, it will be important to understand some of the basic terms used. The terms can make a difference between how fast you get a short-term loan online, the number of documents you need, how long you pay and how much you pay.
What is a short-term loan?
Individuals and businesses take short-term loans when they need to address a short time goal or need. The need and be expected or unexpected. The traditional and non-traditional lenders offer short-term loans under different conditions. Generally, the loans take a shorter payment period between one month to eighteen months.
Short-term loans online tend to be urgent loans and due to their urgency, the lenders ensure they processed within a short time of between an hour to 48 hours. The loan applicant must meet all the loan requirements before qualifying.
The loans also have short notice and because of this, they usually attract a higher interest rate. When comparing short-term loans, understand and consider these three terms.
Types of short term loan
Short-term loans are many and they serve different needs. Financial institutions may not offer the same type of short-term loan and even if they offer the same type, the conditions could be different.
Some financial institutions will ask you to provide security for the loan, which can be your car, house, business, piece of land or household goods. Other institutions will not ask you for all these items, but they will ask for a letter from your employer so that they can redeem their money from your salary.
The processing time is also different for each type of loan, depending on the documentation required. Some short-term loans can be processed in a matter of minutes because they require few or no documents. Others will take anything between 24hrs to 48 hours to process.
Above all, the application processes for short-term loans differ between institutions. Some will require you to visit their office and fill physical forms which might take longer because you need to travel and do copies of your supporting documents.
Other institutions have relaxed rules and will allow you to apply for short-term loans online and will not require you to visit them at any given time. Therefore, you need to understand the type of loan, which institution issues the loan and the terms.
Interest rate is the premium you pay above your principal amount. In simpler terms, imagine you want to borrow a short-term loan of £500 payable within three months. At the time of paying the loan, you will pay the 500 pounds, plus a profit.
Your borrowed amount can remain the same in every financial institution, but the profit can differ with each institution. Let’s say you went to institutions A, B and C and borrowed 500 pounds from each.
Institution A charges 30% profit, B charges 15% and C charges 10%. At the time of paying, you will pay 650 pounds to A, 575 for B and 550 for C. there is a difference of 100 pounds between C and A. The profit is the interest and the 500 is the principle. The interest rate can make a big difference between what you borrow and how much you pay.
The institution may have some other hidden ‘interest’ rates called processing fee, insurance, attorney fee and miscellaneous fee. When comparing short-term loans, you must consider all these charges, which will be added to your borrowed amount.
Some types of short-term loans require you to provide security before processing. The institution will ask for something valuable to you as security. The items can be your property like land, house, vehicle, furniture, electronics or business.
The security you are asked to provide is what is called collateral. The purpose of the collateral is to give the institution hope for redeeming their money if you fail to pay your loan. That means, your collateral will be taken and sold so that the institution can use the proceeds to pay your loan.
If you had given your house as collateral, it means you lose it immediately. Other types of loans do not require collateral. They are called unsecured loans which only require correct documentation.
When you plan to apply for a short-term loan, you should apply for an unsecured loan. If you are not sure if the loan is secured or not, ask the lender to explain to you before filling the forms. Alternatively, you may seek help from a financial advisor who will help you make an informed choice of the correct type of loan.
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