Short-term financing is a service that makes it possible to get money for a limited period of time. In a number of cases, a short-term loan can be issued for up to two years. In modern practice, most short-term loans are issued for a period of up to one to three months. Short-term lending is one of the most popular services. Today such loans can be classified as follows: short-term loans for legal entities; short-term loans for individuals; overdraft on the card (credit limit); microcredits.
Besides the mentioned banking services, one can obtain the necessary amount of money via the alternative lenders called payday loan direct lenders. Find out more about each type of credit and which pros and cons you will face if give preference to one of them.
Main Types of Bank Short-Term Loan Options
Short-term consumer lending can be divided into two types:
- The standard lending: In this case, after the application is submitted by the client, the bank assesses its solvency, after which it makes a decision to grant or refuse to issue the loan. This form is more beneficial for the credit organization, because there is an opportunity to check the borrower;
- Express lending: The peculiarity of such a loan is the high speed of making a decision on the issue of a loan. As a rule, solvency assessment is either not performed at all, or this function falls on a special scoring program. To this type of lending one can refer payday loans online, which you can get within minutes as there is no hard credit check.
Short-term loans are usually a great way for most companies to replenish current assets and quickly close current financial obligations – pay tax fees, pay salaries to employees, purchase necessary components or materials, pay off with business partners and clients. The most known types of short-term loans include overdraft, credit line, one-time loan.
What is an Overdraft?
Overdraft is one of the most popular forms. Its essence is in lending money to the account of the borrower. The lender, on the basis of the agreement, allows the borrower to make payments from the account even if there is no necessary amount on it, that is, to take out a loan. Often, in addition to the main contract of the bank account, an agreement is concluded specifying the conditions for the maximum amount of lending and repayment of funds.
Overdraft is one of the forms of soft loans, so borrowers who have stable financial relationships with a creditor bank (regular customers) can count on obtaining it. The loan period is usually limited and depends on the current need for borrowed capital.
A mandatory condition for an overdraft is the existence of a credit limit, that is, the maximum amount that can be taken over the available balance. In addition, the contract prescribes clear deadlines, during which the borrower must repay the overdraft debt. There are two types of terms for such loans: the general term of crediting on overdraft. Here we are talking about the period of the contract between the bank and the client. It can be of a lasting nature and the short term of each new loan. Such a service operates within the boundaries of an existing agreement and is of a short duration.
Repayment of overdraft debt, as a rule, occurs automatically in the presence of available funds on the customer’s account.
How does the One-Time Loan Work?
This is a special loan, which is provided to the client for various purposes. The loan is executed on the basis of an individual loan agreement made between the parties. The document prescribes the amount of the loan, the purpose of its execution, the amount of interest and collateral (if it is provided). To receive such a loan, the client must present the required package of securities every time.
The essence of a one-time loan is a lump sum, that is, funds are transferred from an ordinary loan account to the customer’s accounts. At the same time, the company may have several loan accounts, each of which is opened for a separate lending facility. Payment of funds for these types of loans can be made by one sum at the end of the contract or by the schedule drawn up at the time of the conclusion of the transaction.
Main Features of the Credit Line
It is another type of short-term lending, which in recent years has increasingly become medium- and long-term. The essence of the service is the creditor’s obligation to lend to the customer within the personal limit. The possibility of receiving funds can be used at any time, when this becomes necessary, without having to issue additional documents and negotiate with the lender.
The credit line is usually issued for one year. At the same time, the client of the bank with a timely and unquestioning fulfillment of obligations always has an opportunity to prolong the service for a new period. The size of the credit limit at the request of the borrower can be revised upwards.
The credit line can be of two types:
- Renewable. Under the terms of the contract, the borrower has the right to use funds within the limits of the credit limit for the entire term of the agreement. In this case, the basic conditions for obtaining a new loan is the partial or full repayment of the existing debt. The renewable line is characterized by two types of repayment – up to a certain date of the month (established by the agreement) or on demand;
- Non-renewable. The essence of such a transaction is the transfer to the client of certain tranches having a fixed amount and limited to the total amount of the loan. Payment of each subsequent tranche is made regardless of the amount of repayment of the previous one. As a rule, each repayment period has its own repayment period, but the day of final payment should not exceed the deadline for the loan agreement. The loan limit in this case is the amount of tranches provided by the bank.
Pros and Cons of Short-Term Credit for Companies and Individuals
Among the advantages of the short-term borrowing for companies there are such as:
- the opportunity to increase its working capital to solve the primary tasks – covering the current deficit, paying taxes, paying off debts in wages;
- flexibility in the use of funds by maturity (for certain types of loans). Short-term nature of the transaction makes it possible to rationalize the use of borrowed resources, timely return them and reduce the overpayment to a minimum level;
- a short-term loan is usually provided by the company’s cash flow, which is credited to its account with the bank (lender). Therefore, there is no need to provide additional collateral.
Advantages for individuals:
- high speed of consideration of an application and a minimum package of documents;
- a short period of time between applying for a loan and providing the necessary amount;
- absence of strict requirements to credit history, solvency and provision of certificates confirming income.
Shortcomings of short-term credit for companies:
- the use of such a loan carries certain risks. Interest costs, as a rule, often change and they cannot always be predicted. If the company cannot repay its debts on several short-term loans, and the creditor refuses to extend them, then there is a situation of bankruptcy;
- The credit limit for most loans is limited and it is not always enough to solve more serious issues, for example, updating the enterprise’s material base;
- Short-term loans are almost impossible to get start-ups that are just starting up and working on the market for less than 3-6 months.
Shortcomings for individuals:
- the size of the loan, as a rule, has a minimum amount;
- high interest rate;
- the need to repay the borrowed amount of money within the short period of time.
Short-Term Borrowing with the Bad Credit History: Peculiarities of the Borrowing Procedure
An application for getting a loan will be rejected if it does not comply with the terms of the loan requirements, in particular in the following cases:
- younger than 18;
- neither a citizen nor a resident of the country;
- the registration form contains errors.
Bad credit history prevents from the possibility of receiving funds from banks. Even if you are currently creditworthy, having your name in the non-payer database is the basis for refusing a loan. Then the only solution is non-bank companies that provide funds to individuals. Micro-loan organizations do not check the presence of the client’s name on the list of debtors of the banking sector.
Anyone can apply for a loan online with a bad credit history. But, at the same time, it should be remembered that in the event that the debt is not repaid, you will not be able to use the services in the future. In order to take out an online loan with a bad credit history, you need to go through a standard registration procedure and send an application for the required amount of funds. Terms of the transaction remain the same for all borrowers.
Alternative lending companies do not require a guarantor or collateral for a loan with a bad credit history. In case the client does not fulfill the obligations assumed, the company has the right to collect compensation in court or transfer rights to claim debt to third parties. If unexpected difficulties arise and you understand that you are unable to repay the debt in a timely manner, contact the borrower with a request to refinance the current loan. This step will allow you to avoid problems with the credit history and in the future expect to increase the limit on the personal account.
Borrowing from Payday Lenders: Benefits It Has Compared to Bank Lending
Do you have to go to the bank if you urgently need money? And what if the amount that you so lack is not so huge, and time is short? In such situation you may benefit from getting a payday loan online. Let’s consider payday advances in more detail:
- Simplicity: Getting an online payday loan is very easy, for this you shouldn’t even leave the house. It is enough to go to the site, fill out a questionnaire, and in a few minutes the necessary amount will be on your bank account. In addition, the user-friendly interface of credit services is understandable even for inexperienced users of the computer.
- Save time: With online services, you will not waste time visiting banks in search of a better deal and then wait in queues. It takes about 15 minutes for the loan to be issued online, because the system works completely automatically.
- Independence: Do not need to adjust to the schedule of the financial institution. Online credit can be issued anywhere and anytime – even at night and on weekends. The main thing is to have access to the Internet. And with the development of 4G technologies, you can do this even with a smartphone. Similarly, you can follow the state of your loan in your account.
- Transparency: Using the payday loan calculator available on the site, you can immediately see the accrued interest and the full amount that you will have to pay in the end. You can independently adjust the size of the loan choosing the optimal option for yourself.
- Small amounts: Banks are mainly interested in providing large loans. Therefore, if you urgently need a small amount up to $1000, an online loan is the best option. Through online services, you can borrow even $100.
- Confidentiality: You do not have to explain why you need funds, whereas most banks provide loans only for specific purposes. Therefore, through online services, you can safely borrow money for home repairs, and for the purchase of a phone.
- Availability: Unlike bank loans, internet loans are offered almost to everyone. This service is available to pensioners and students. To borrow money on the Internet is not a problem even if you are currently unemployed, the only condition is to be of age and have a stable income source.
As you can see, the advantages of payday online lending are obvious. Such loans can quickly help out in an unforeseen situation. It is important to remember one thing: when choosing an online lender, give preference to proven companies with a good reputation.