When applying for a loan, there are a few big decisions that you would have to make. The length of the loan term is just as important as the loan amount and the rate of interest. Short-term financing is a fast and flexible way of raising funds which involve financial obligations which needs to be repaid within a year or even less. It is great way for companies to get working capital for the purpose of daily operations when the cash flow is sufficient. But, who offers short term loans? What are its advantages?

Listed below are a few advantages of opting for short term loan.

Flexibility

Often small companies have variations in cash flow and require access to capital over that period of time. Individuals too need finance when they are short of it. Short term loans are a great option wherein the lender would charge a fee for offering this facility and interest on the total amount. These loans are very flexible and can be withdrawn at any point of time without any hassles.

Lower Rate of Interest

Short-term loans are known to have rather lower rate of interests. However, a lender might charge a higher rate of interest in case there is no secured asset. But, most of the mortgages for a shorter period of time charge a much lesser rate of interest. This implies that you would be able to save money in two ways- the rate upon which the interest has been applied and the time the loan has to accrue.

Lesser Stress

Owing money for a longer time period and watching the interest accumulate can take a psychological and emotional toll. But with a short term loan, you would pay off the loan much quickly and be able to be free of the loan burden.

Predictable

It can be quite difficult to estimate where the finances would be in the near future. No one is sure where the economy would be in the next 20 or 30 years. If you opt for a long-term loan, you would be responsible for the payments even in the future regardless of the financial situation. However with a short-term loan, it is much easier to predict and budget accordingly.

Boosts Credit Score

One of the main reasons as to why people prefer short term loans over long-term loans is because it helps in boosting the credit score. It is because with short term loans, you pay off the loans in a timely manner which works on to improve the credit score effectively.

Lower Risk

With a long term loan, you usually need to secure an asset like your home against the loan. The short term loans too are legally binding and have to be paid off. However, if a default happens, the borrower would not have to lose their home thereby king it a much preferable option over long term loans.

The short term loans take much lesser time to process. However, you need to find out who offers short term loans? and then read their terms and conditions properly. Therefore, if you need quick access to money, short term loans would be the perfect option for you.

 

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