What are Short Term Loans and How They Work

short term loans

Loans are part of everyone’s life. Not all people are financially well off. Only a few people are cash-rich and don’t have any problem buying products or services at any cost. But, several people are dependent on loans. There are long terms loans and short-term loans.

Long term loans are usually for big enterprises or people who have more wealth. Long-term loans are for an extended period. They may be industrial, personal, or other loans. They have a high-interest rate, and you need to mortgage your property papers for them also. There are various formalities required for long term loans. But, Short term loans are the most favourite Instant loans that are taken by a large number of people for multiple purposes.

Short Term Loans:

Short term loans are that the banks or co-operative societies grant. They are usually paid within a year by the people or institutions. However, most short term loans exist for six months. The loans for 3 to 6 months are more prevalent.

Short term loans are designed for the low level or middle-level income groups who cannot fulfill their desires because of limited resources. With the help of short term loans, they can also raise their living standards and lead a good life. They can fulfill their dreams and also can provide high-quality education to their children. The collateral and rate of interest vary as per the period of short term loans.

Key Elements of Short Term Loans

Various factors influence your decision to take short-term loans, but few of them are discussed below for your convenience.

1. Rate of Interest: The rate of interest is an essential factor in determining a short-term loan facility. As the span of short term loans is not too long. It varies from three months to six months or maybe from five years to ten years. Though there is a low-interest rate, the percent interest rate depends on the period of loans. So, always find the right option to pay a low-interest rate for your short-term loans.

2. Source of Short Term Loans: Though, all the reputed banks offer short term loans. You can also approach co-operate societies or government institutions to get such loans. Many banks have several formalities before applying for short term loans. You should apply in multiple financial institutions to get a quick and low rate of interest-based short-term loans for a better deal.

3. Collateral Documents Required: Short term loans require low value based collaterals. You don’t need to submit high-value collaterals for sanctioning of loans. They are for a short period and don’t create many risks in repayment of loans on time. Sometimes, many people use vehicles as collateral to approve their loans.

4. Repayment of Loans: It is always suggested that you repay your loans on the actual date or before the date so that they don’t get accumulated over some time, and you may be penalized for that. In case you have sufficient funds available in advance, don’t wait for a long time. Try to clear your dues on time to make your credit score optimistic for the future. A small mistake can create several future problems, while disbursement of another loan is required in the future.

5. Risk-Taking Capacity: Never go for short-term loans if you feel that you may have troubles in the future. You need to determine the period of repayment of loans as per your risk-taking capacity. If you cannot forecast or plan your financial calculations correctly, you may get into trouble for your wrong decisions.


Loans are an essential factor in your life. Short term loans are more in demand than long term loans. Nowadays, most companies are providing products and services in instalments to several customers. They have understood the customer behavior. Short-term loans are useful to achieve most of the goals you had not dreamt of earlier in the absence of sufficient funds or limited resources.