Short Term Loans

Short Term Loans are increasingly becoming a trend in the financial world. There are several individuals who are looking at short term loans as a means to be able to come out of the financial mess that we sometimes find ourselves in. Considering the volatility of the financial world, short term loans have taken the precedent over many other forms of loans. Short term loans thrive on the fact that there are many individuals who find it extremely difficult to look at long term loans as a viable option. There is an entire class of society that does not have a source of credit for small loan amounts where Short term loans have easily bridged the gap and brought the customer closer to different types of credit.

Definition of Short Term Loans:

Short term Loans are essentially cash advances that range from 50 pounds to 1500 pounds depending on the lending agency providing the services. These “cash advances” can be used in the case of an emergency or a situation where you find yourself in immediate need of cash.

Different types of Short Term Loans:

There are different types of short term loans available in the market and it is our responsibility to ensure we use the correct one which suits our requirements in the most feasible manner.

1)    Bridging Short Term Loans: Bridging Loans are used essentially to serve as a funding bridge for the purchasing or the refinancing of a property asset, where the property is bought at a discount needing immediate settlement before the value/mortgage can be decided and put into place.

2)    Unregulated Short Term Loans: These are essentially loans that are provided through security against residential properties, commercial properties or properties which serve both purposes.

3)    No-credit check Loans:  These are short term credit options for people who find it extremely difficult to apply for loans because of a bad credit history, in this case they have to provide a guarantor as their parent, family member or a close friend who can stand as guarantee for a loan.

Regulation of Short Term Loans:

There has been a sufficient amount of controversy circling around the regulation of short term loans. It has been said that since these are usually secured against investment properties, these short term loans remain unregulated. There are not many specialist bridging lenders that are regulated and the few of them that are, come under the purview of the FSA. It is now being considered that some of the short term loans against residential properties will be regulated by the Consumer Credit Act. All the paperwork and the documentation will be taken care by the Consumer Credit Act.

Advantages of Short Term Loans:

Let us discuss some of the advantages of short term loans.

·        It is a common fact that people don’t like the burden of loans on them for a large duration of time, since it limits their finances to a considerable extent. Short Term loans have provided the alternative to such a thing, as it provides the customer with the benefit of choosing what type of loan he would like to opt for, considering his financial need, stability as well the duration he needs it for. Short term loans usually range from 1 year to 15 years.

·        It helps you to drastically improve your credit history. Some people avail of these loans, in order to improve their credit worthiness. If you take a short term loan for a specific duration and pay it back within the stipulated time period, it dramatically improves your credit worthiness with the banks and gives you a sort of a “clean chit”.

·        When we look at short term loans, we look at the disadvantage of having to pay a much higher interest rate as compared to long term loans. When you actually compare these 2 types of loans, you will find that the interest rate for a long term loan comes out to be much more expensive than a short term loan.

Disadvantages of Short Term loans:

There are 2 main disadvantages of short term loans which need to be discussed.

·        Some type of short term loans have a much higher interest rate, if it is for a smaller duration of time and as a result of that, if there does arise a situation where you are not able to repay the loan, the interest rate that you will have to pay as penalty will be much higher than a long term loan.

·        These short term loans have known to have a compounding effect. We might think that we can use these short terms for a short duration of time to pay off an expense that we incurred right now, but when the time comes to pay off the loan, we often find ourselves in a financial crunch and in a position where we find it difficult to pay off the loan.

·        Short term loans are identified with high APR. This is a question that has been a topic of debate for many years, as to why the APR is so high as compared to long term loans. Short term loans cannot be compared to long term loans and they calculate the APR on the basis of the annual percentage, since they are for a shorter duration of time. Short term loans taken over a longer duration of time have a lower APR, but the amount you will have to repay also increases substantially.

Short term loans are here to stay, since the public is realizing that this is a way to reduce their dependence on long term loans or on other unreliable forms of credit. One needs to be extremely careful while applying for these loans, as it can lead to an even greater financial loss as compared to long term loans, if not repaid on time, as the interest rate and the penalty fees are much higher. The type of short term loan needs to be checked upon, the lending agency involved as well as the credibility of the instrument in the market at the time.