As with long term loans, short term loans are powerful in meeting the diverse personal and business needs of borrowers. Lenders create different short term loan products for this purpose, and for developing investment potential and market competition.
The strength of short term lending instruments
Short term loans take on varying forms and may include:
- Money loans from friends or family.
- Credit through store or bank cards.
- Bank overdraft facilities.
- Emergency or bridging loans.
- Guarantor loans.
- Peer to peer loans.
Borrowing money from friends and family may be the most economic means of lending, however, not all individuals are in a position to have this type of opportunity. Weighing the cost of credit card charges for cash advance amounts and durations is important, as other short loan instruments may be more viable.
Bank overdraft facilities may depend on credit-worthiness and account history. Those with a weak credit history may not be privileged overdraft facilities and may seek cash infusions elsewhere. Emergency or bridging loans provide cash to meet monthly bills due before wages or salary are received. These loans may have high interest rates and charges.
Those with high credit-worthiness may be able to obtain bank loans with favourable rates and terms easily. Those, however, who lack credit history or have weak credit worthiness, may not be eligible. Guarantor loans where a credit worthy individual stands security for the loan agreement are a means for these individuals to receive the loan monies they need.
Peer to peer loans are a new social lending mechanism linking savers and borrowers directly. Savers deposit amounts that are spread between borrowers. The borrowers pay a lower APR and savers receive higher interest earnings.
Whatever form the short term loan takes, there are certain common aspects, such as:
- Quotation and APR.
- Loan terms and conditions.
- Interest rates and charges.
- Loan amount and duration.
- Repayment type, amount and frequency.
- Credit worthiness checks.
A personalised short term loan quotation from a bank or credit institution is generally listed as an entry on one’s credit record. The same is true for short term loan applications. This is not the case, however, with peer to peer loans.
By law, loan APRs should be clearly advertised. The loan APR for the amount and duration, and any additional charges, makes all the difference to how interest compounds and the final total amount of monies repaid for borrowing. Requesting a breakdown from the short term loan provider enables thorough comparison of short term loans on the market.
Extending a loan’s repayment duration, lowering monthly repayment amounts, or defaulting on repayments during the course of the loan can raise loan costs.
Comparing short term lending vehicles to maximise loan benefits is crucial. The power of short term lending rests in the right type of loan, matched to a person’s circumstances or business needs. Ultimately, keeping loan costs down and using the loaned money as a foundation to improve future earnings potential, is a means of empowering financial strength.