People are often confused when they search for loans because there are different types of loans available based on different needs – secured loans, unsecured loans, home loans, payday loans, and lot more. These loans are generally classified as short-term loans, medium-term loans, and long-term loans. These loans are aimed at allowing the borrowers to repay the loan over different periods of time. And the period of time depends on the size of the loan and its affordability.
The last few years have seen a rise in the short term loans, especially the ones where the repayment period is less than 12 months. One such short term loan in demand is the payday loan where the repayment period is as less as 30 days.
Short Term Loans
People think of short term loans as the most controversial form of loans. Some of the loans that come into this category are the payday loans, pawn shop loans, and asset-backed loans. Short loans do not usually involve large sums of money. They might range between £100 and £1000, and the term of repayment is also short. Short term loans are taken only in times of emergencies as they claim high-interest rates and the late charges are also heavy if repayments are not made in within the specified duration. Though short term loans are a boon to many people, one need to be aware of its features so that they can avoid certain dangers at a later period.
Features of Short Term Loans
This is one feature where short term loans help customers than another type of loans. If the needs of the borrower are short term, then short term loans offer a flexible way to cover it. If the lenders of the loans are satisfied with the application of the borrower, then short terms loans offer a lot of choice and flexibility over its use. The best examples are the Overdrafts and the Payday loans.
The main advantage of short term loans is the speed at which they are sanctioned by the lenders. Borrowers get access to the loans within hours of approval and at the maximum, within a day. Short term loans are offered by the lenders with the help of the latest technologies meaning that borrowers can apply for the loan online either through a mobile phone or their laptop. With the evolving technologies, even the loan agreements are signed online.
There is also a disadvantage when speed is one characteristic of the loan. Borrowers do not give a second thought on whether the short-term loan is a solution to their problem and quickly apply to it. It is thus, important to think through it before applying for one.
Size of the Loan
Short term loans usually involve a small amount of money. Most of the time, the amount is less than £1000. For first time borrowers, the amount is not more than few hundred pounds. We need to understand that when there are so much flexibility and speed offered for a loan, then it involves only a small quantity of money. The only exception to the above statement is logbook lending.
Short term loans always come with a high rate of interest. Hence, short term loans are considered to be on the expensive side when compared to the long-term loans where the interest rate is much lower. But the lenders argue that lending an amount for a short period needs a higher rate of interest for making a considerable profit.
The last characteristics of the short term loan are the one that needs much thought. This one feature requires much consideration as it is one drawback of short term loans. If the loan account goes into credit (amount overdue), then the borrowers are charged a certain fee amount. If the loans are for lower amounts, then the late fee is a higher percentage of the total amount borrowed.’
This practice of charging a higher amount as the late fee has grabbed the attention of the government and the government Is planning to regulate the charge through some kind of regulations.
Short term loans are preferred by people in cases of emergency situations as short term loans offer the required flexibility, speed and is available for borrowing even small amounts. But the cost and the charges for these loans is what is need to be researched before taking a loan from a lender. Research on the lender and then make a wise decision.