A loan is a huge commitment and responsibility, and it is acquired for various reasons and financial requirements. Before deciding to procure a loan, the borrower, especially the first timers; must seriously evaluate and weigh in on the pros and cons.
Whether you are applying for a loan intended to fund a business or for personal needs, you must understand that loans have different conditions, features in terms of eligibility, interest rates and repayment term. Before you apply for a loan, you might want to consider first the benefits of short-term borrowing.
Immediate solution for Unexpected and Beyond the Budget Expenses
For any individual or entrepreneur, applying for a short-term loan is a good idea. Small business owners who are not eligible for a bank loan can apply for a short-term loan. If you are one of those individuals who are facing an emergency, you can benefit from it by applying for an advance on your paycheck.
Flexible Payment Tenures
Short-term loans are favorable by having flexible payment terms that usually range between 3 months up to one year. This offers a more convenient way of making payments because borrowers can choose from the list of short tenures provided by the lender and decide which best suits their current financial situation.
Build Good Credit Scores
A short-term loan can be favorable for borrowers because it has a smaller risk factor. Compared to long-term, processing time for this type of loan is faster. With this feature, borrowers can easily maintain a good repayment ability which will be constant over a shorter period. The shorter the period or tenure for repayment, the better because of lesser risk of being in default.
Saves Money on Interest Penalty
Total payments for interest in short-term loans are much smaller since it is within a short tenure. A lower interest rate applied over a short period of time simply means savings for the borrower.
Save Credit Card Spending Limit
Loans and credit cards have similar requirements, and both offer options to secure funds providing borrowers easy access and immediate credit, but credit cards are totally different since they offer revolving credit, which means that credit is automatically renewed as debts are paid off.
You can’t easily estimate where your finances will be in 10, 20 or 30 years from now, and nobody of us knows for certain how the economy will be in the distant future. When you acquire a long-term loan, it is your responsibility to pay your dues on time, regardless of what your financial situation is. With a short-term loan, it is much easier to predict and budget your finances.
Owing money for a long period of time accrues huge interests; and if you watch how that interests grow over time, it can affect you emotionally and psychologically. With a short-term loan, debts are paid off much quicker and you’ll be debt-free in just a span of a year or less.
Most lenders of this type of loan offer an unsecured loan that doesn’t require any type of collateral. They don’t rely on borrower’s assets as security, instead they approve unsecured loans based on a borrower’s creditworthiness. In fact, even people with bad credit are allowed to apply and get approved of a short-term loan.
These are some of the best benefits that a borrower can get from short-term loans. But those benefits still depend on how the borrower manages his or her debt and how responsible he or she is as a borrower.