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Last Updated 12.09.2022
Last Updated 12.09.2022

Short Term Loans: Definition, Types, And Application Process

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Short Term Loans

Short-term loans can be an attractive and beneficial option, depending on your and your business’s financial needs. Sometimes, even if you carefully plan your monthly budget and it seems like you’ll make it till your next paycheck, your plans can go awry in many different ways. In those situations, short-term loans can save the day. 

Short Term Loan Definition

Short-term loans are borrowings obtained for a short period to meet a personal or business monetary need. Businesses or individuals get quick cash when an emergency arises and solve their temporary cash flow issues. Unlike traditional loans, the best short term loans have shorter payback periods, typically from 6 months to 2 years, and range from $100 to $100,000. 

How Do Short Term Loans Work?

Short-term loans work as a rescue when businesses or people need money urgently. For example, the business cannot operate normally when all its debtors delay payments. But the business owner also doesn’t want to get a mortgage loan and pay for it in 20–30 years as his financial issues are only temporary. So, the best solution is to get short term loans online for a 6–18 month repayment period and meet your company’s monetary requirements. 

Advantages and Disadvantages of Short Term Loans

All loans, including short-term ones, have advantages and drawbacks. On the one hand, these loans are convenient as they have an easy application and a quick approval process. On the other hand, short-term loans are unsecured and come with high interest rates, especially when the borrower has a poor credit history. Let’s discuss the pros and cons in detail. 

Advantages of Short Term Loans

  • People can borrow small amounts. They don’t have to take out 30-year mortgage loans when they need quick cash. Short term cash loans allow borrowers to acquire small amounts of money and solve their short-term financial crises. 
  • Short-term loans are approved fast. Borrowers don’t have to go through a lengthy application process and wait for days to get approved. 
  • Short-term loans have lower interest rates. As the repayment period is short, the interest borrowers should pay is also small.
  • Short term loans for bad credit are a great option for improving poor credit scores. If the borrower repays the loan according to the repayment schedule, it improves his credit history and increases his creditworthiness. 
  • Such loans usually don’t require any collateral and are easy to obtain. Moreover, people with no valuable assets also have access to short-term loans as they don’t have to put up anything. 

Disadvantages of Short Term Loans

  • Usually, short-term loans allow borrowing small amounts. The amount may range from $100 to $100,000. So, they aren’t suitable for people who need a larger amount.
  • Though these loans usually have lower interest rates, several short term payday loans have significantly high APRs. Some lenders charge 400% interest on payday loans, which is a large amount for people with humble financial means. So, instead of improving the borrower’s financial condition, such unfavorable terms can cause him penalties and a lower credit score. 
  • If you want a single payment loan like a payday loan, you should consider that lenders can withdraw the lent amount plus the interest on your next payday from your bank account as they can assess it. 
  • When the loan is secured, lenders can provide a short term loan no credit check. But since most short-term loans are unsecured and borrowers usually have low credit scores, loan providers set high interest rates. The purpose is to compensate for the borrower’s lack of creditworthiness and cover some losses if the borrower defaults on the loan. 

What Types Do Short Term Loans Have?

Several types of loans are called short-term. They are listed below:

Merchant Cash Advances

This short-term loan is suitable for businesses that accept credit or debit card payments. It functions like a loan but is a cash advance. The business borrower receives the loan from the lender and allows the lender to access his credit facility. When a customer purchases something from a business and pays with a credit or debit card, some percentage goes to the lender until the loan is completely repaid. 

Lines of Credit

Lines of credit are fast cash loans that work like business credit cards. But lines of credit usually have a lower APR, so borrowers prefer them over business credit cards. The bank or financial institution sets a credit limit – the maximum amount the borrower can use. Then, the borrower can either withdraw the entire amount in a lump sum or some amount at a time as required. And the bank doesn’t charge the entire amount but on the withdrawn part only. Hence, the monthly payments vary depending on how much of the credit line has been used. 

Payday Loans

One can obtain a payday loan online if they have a financial emergency and need quick cash ASAP. Though it’s easy to get payday loans, borrowers must repay the entire amount in a lump sum on their next payday. It means the maximum payback period for such loans is 30 days. While getting the loan, the borrower authorizes the lender to access his bank account and take out the loan amount and the interest. 

Invoice Financing

This type of loan is suitable for businesses that have accounts receivable. The business prepares and sends invoices to its customers. Still, while the customers take their time to pay their bills, the business borrows money from a bank or financial institution to meet its liquidity requirements. Meanwhile, the lender charges interest for the weeks that the invoices stay unpaid. When a customer pays for an outstanding invoice, the lender takes the interest and sends the business what is due.

Bank Overdraft

If you need a short term loan for your business, a bank overdraft can be a suitable solution. The bank may provide the required amount when a business tries to withdraw some money but has insufficient funds in its bank account. But the banks charge interest at unfavorable rates. And businesses should be careful with bank overdrafting as sometimes it happens automatically without prior notice. As a result, businesses have to pay millions in interest charges. 

Online or Installment Loans

Online lenders usually provide fast short term loans that are easy to apply for and fast to get approved. The application process takes 5-10 minutes as it doesn’t require much paperwork. Then, in case of getting approved, the lender transfers funds to the borrower’s bank account within a business day. 

In Which Situations Should You Get a Short Term Loan?

When is it beneficial to get a short term loan? Let’s discuss five situations:

  • Businesses can take out short-term loans to cover startup costs. They have the money to launch a new company or product, but some unexpected costs come forth. So, entrepreneurs get short-term loans to cover those expenses.
  • People get a short term personal loan to deal with emergencies and get back on track ASAP. Emergencies include paying medical or utility bills, needing plumbing services, fixing a car, etc. 
  • People need short-term loans to finance their purchases. For example, you can get a loan to buy a laptop or smartphone, go on a vacation, plan your wedding, etc. 

How to Apply for a Short Term Loan Online

As short-term loans are sources for getting quick cash, their application process is pretty straightforward. In addition, most lenders operate online and accept applications via their websites. So borrowers don’t have to waste time and resources traveling to a physical office. 

The best way to get a short term loan is to prepare the required documents and fill out the online application form. Usually, loan providers require a valid ID or passport that proves your identity, proof of address, citizenship, social security number, and bank account information. These are the main documents required, but the list may vary depending on the lender’s terms.

How to Pick a Short Term Loan Lender

Eligibility, APR, Terms And Borrowing Limit

To qualify for a short-term loan, you must meet the eligibility requirements. 

  1. You should be 18 years old or older to qualify for a loan.
  2. You should have a stable income or alternative source of income such as an allowance, child support, etc.
  3. The debt-to-income ratio should be satisfactory.
  4. Some lenders view your credit history and evaluate your creditworthiness. But most lenders provide short term loans online no credit check.

The average payback period for short-term loans is 12–36 months but can be shorter depending on the amount borrowed. For example, most payday loans have a 30-day repayment period.

Lenders also set borrowing limits on loans. For example, most loan lenders set a $1,000 to $50,000 limit on short-term loans. This amount can go as low as $100 in the case of payday loans and as high as $100,000. 

The average APR of short-term loans is 5.99%–35.99% depending on the loan type and borrowing amount. 

How to Pick a Short Term Loan Lender

To choose a good loan lender, you should pay attention to the following factors:

  • Check out the lender’s reputation. When you think, “I need money desperately,” you may rush to borrow it from a random loan provider. It can be dangerous, as fake lenders and scammers are common. 
  • Check the loan APR. As mentioned, the average APR for short-term loans is 5.99%–35.99%. 
  • Make sure that the lender provides different types of loans. Short-term loans come in different forms, such as personal loans, payday loans, lines of credit, invoice financing, etc.

Why is AmericaCashAdvance.com a Good Choice?

AmericaCashAdvance.com is the best place for short term loans as the lender offers beneficial terms, a large variety of loans, and a flexible repayment schedule. After visiting the lender’s website, you’ll notice a widget on the homepage. Here you can set the required amount ($100 – $5,000) and the duration (1-to-12 months). Then you should click the “Get Started” button to apply for the loan. The application review process is automated, and you’ll receive feedback regarding the loan within minutes. If your loan is approved, you’ll receive the money in your bank account within a business day.

FAQ

Is A Personal Loan With Bad Credit A Short Term Loan?

A personal loan with bad credit is a short-term loan as it’s unsecured, easy to obtain, and should be paid back in a short period.

Can I Get a Short Term Loan With a Poor Credit History?

You can get a short-term loan even if you have a bad credit score. This is because most lenders don’t run a credit check, while others require you to put up collateral.

How Fast Are Short Term Loans Approved?

The loan approval process takes several minutes. The entire process, from when you type “short term loans near me” and receive the funds, takes a few hours.