Now, loans are easily available from different private lenders and banks. However, when you apply for the short-term loans, you need to consider several things like rate of interest, repayment structure, tenure of loans, hidden charges, pre-payment fees, processing charges, and types of loans.
There are mainly two types of loans available in the market like, secured loan and unsecured loans. For the secured loan, you need to mortgage your assets like property papers to the lenders, and you can avail the loan at a minimum rate of interest.
For the unsecured loan, you need to submit your income proof, bank statements, residential address proof, business proof and lot more documents. Banks and lenders will check your credit score and go through your documents, and then they will disburse your loan accordingly.
Here are vital factors to ponder before applying for short-term loan.
- Type of loan: First, you need to decide that what type of loan you need. If you need a short-term personal loan then you need to submit collateral deposits. Else, you must produce your business proofs and income statements for the same. However, when you require the loan for the business, you need to write down the purpose of the loan, whether you are applying for short-term loan for equipment financing, as a term loan or you need these funds as working capitals. Apart from these two loans, student loans are provided on short-term basis and you can apply for this loan for your short-term courses.
- Interest rate: When you apply for the short term loan, you need to compare their interest rates. There are several banks and private lenders, who offer different kinds of interest rates, and they can charge you higher interest for your poor credit score. So, be prepared for this and always do research before applying for the short-term loans.
- Term of loans: People apply for the short-term loans because they do not want to bear the long-term EMI and interests. They just apply for the loan and utilize the fund for a purpose and then they repay the loan within one-year maximum. However, if you find low interest rate loan, then calculate the EMI and compare this EMI with other short-term loans. If you find the same value EMI then you can increase the tenure. You will get maximum time for the repayment and you do not need to spend any additional amount for this extra tenure.
- Hidden charges: When you apply for the short term loan, you should check the upfront fees of the loans. Some lenders will charge you different types of upfront charges like, origination fees, appraisal, underwriting fees, administration and processing fees and credit report charges. Try to avoid these fees for the short-term loans.
- Down payment: Some down payment might be required for short term loans. Short term loans do not require down payment, but in case of car loans and home loans, you need to pay this amount. You need to make 5 to 10% down payment for this loan. However, some lenders can offer you 100% finance facility and in this case, they can charge you additional interest. So, calculate and compare the extra interest with your down payment amount and then decide the loan according. In this case, you can also consult with the tax consultant or brokers to understand the value of down payment.
- Loan repayment: You should calculate your repayment capacity before getting the short term loans. In case of short-term loans, you need to pay a large amount EMI and calculate your monthly repayment capacity before you apply.
- Credit score: For the short term loans, credit score plays a vital role. So, if you have a poor credit score then rebuild your credit score first. The tax consultant can evaluate your credit score and rebuild your credit statement. Then you can apply for the short-term loans and avail lowest rate of interest.
- Secured loan: If you know that you can easily repay the loans within one year, then you can go for the secured loans. In this case, you need to mortgage your asset or property papers to the lenders, and they will disburse your loan within a few days only. You can repay their amount within the stipulated time and release your asset from the lenders.
- Emergency loans: If you need funds on emergency basis like for medical treatments, you can approach your bank and they can arrange short-term overdraft loans for you. In this case, the amount will be credited to your account, and you need to pay the interest along with the principal on your spending.
- Loan brokers: Lastly, it is always suggested to consult brokers as they can assist you to choose the best short term loans at the lowest rate of interest.
Moreover, nowadays, you can avail short term loans from online portals and calculate your EMI on the online calculator.