5 Types of Short-term Loans in India

Have you ever found yourself in a pinch, needing extra cash to cover unexpected expenses or fulfil a dream? Whether it's an emergency, a personal goal, or a sudden expense, short-term loans can be a lifesaver. Financial institutions in India offer a variety of short-term loans like personal loans, bridge loans etc. offered without collateral, security, or a guarantor.

These loans are disbursed quickly, often within hours, making them an excellent solution for immediate financial needs. Due to their quick disbursal, they're termed "short-term". Their brief repayment terms, which can range up to 36 months.

Let's learn the different types of short-term loans available in India. Read further to know their features and benefits, and how you can get one that suits your needs.

What are Short-Term Loans?

A short-term loan is a financial product designed to provide quick funding for a limited period. The repayment tenure for these loans can range from 6 months to 36 months, depending on the loan type. Opting for a loan with flexible repayment options can help keep your Equated Monthly Installments (EMIs) manageable.

Also Read: What is an Equated Monthly Instalment (EMI)?

Types of Short-Term Loans

1. Trade Credit

Trade credit is an interest-free loan that businesses can obtain to make urgent purchases. Typically, this type of credit needs to be repaid within 30 days. However, you can request a longer tenure to fit it into your budget. The flexibility in tenure allows businesses to manage their finances better and fund various initiatives.

Benefits:

• Interest-free financing
• Flexible repayment terms
• Helps manage cash flow

These loans are ideal for businesses needing to make urgent purchases without immediate cash outflow.

2. Bridge Loans

Bridge loans are designed to cover financial gaps until you secure a larger loan. Many people in India use these loans for property transactions. If you're waiting for funds from another loan, a bridge loan can provide the necessary funding in the interim. It's an excellent option if you need to wait for the right moment to apply for a bigger loan with better terms.

Benefits:

• Quick access to funds
• Temporary financial support
• Ideal for property transactions

This kind of loan is ideal for individuals or businesses needing temporary funds before securing a larger loan.

3. Personal Loans

Personal loans are unsecured loans that you can use for various purposes such as weddings, education, home renovations, medical emergencies, or travel. Lenders evaluate your eligibility based on employment status, credit history, and income level. A short-term personal loan in India stands out due to its higher loan amounts and longer repayment terms of up to 36 months.

Benefits:

• No collateral required
• Higher loan amounts
• Longer repayment tenure

These loans are Ideal for individuals needing funds for personal expenses without pledging collateral.

Also Read: How to Get Instant Personal Loan Online?

4. Demand Loans

You can obtain demand loans against your insurance policy or other savings instruments like National Savings Certificates (NSC). The savings instrument's maturity value decides the loan eligibility and amount. Some instruments have a lock-in period before which you cannot demand a loan against them.

Benefits:

• Leverages existing savings instruments
• Quick access to funds
• Flexible loan amounts

This loan suits individuals needing funds and having eligible savings instruments.

5. Bank Overdraft

A bank overdraft allows you to withdraw more money than you have in your current account up to an agreed limit. Interest is only charged on the amount you withdraw. However, be mindful of additional costs, such as fees per withdrawal.

Benefits:

• Flexible withdrawal options
• Interest is charged only on the withdrawn amount
• Immediate access to funds

This loan is ideal for individuals or businesses needing occasional, short-term cash flow solutions.

Features and Benefits of Short-Term Loans

Understanding the features and benefits of short-term loans can help you choose the right one for your needs:

• Quick Disbursal: Many lenders now offer digital loan application processes, eliminating the need for branch visits or physical paperwork. It streamlines the application process and enables quick disbursal of funds directly into your bank account.
• Flexible Repayment Schedule: With repayment terms of up to 36 months, you can choose a tenure that suits your budget. An EMI calculator can help you determine the most affordable EMIs for different loan terms.
• Limited Documentation: Short-term loan applications require minimal documentation, typically just proof of identity, address, and income. You can scan and upload these documents online, further simplifying the process.
• Immediate Financial Relief: Features such as no collateral requirement, 100% digital procedures, simple eligibility criteria, minimal documentation, and no end-use restrictions make short-term loans an immediate financial resource for urgent needs.
• Credit Score Improvement: Regular EMI payments on short-term loans can improve your credit score, enhancing your eligibility for larger loans in the future.

Eligibility Criteria for Short-Term Loans

Eligibility criteria for short-term loans may vary based on the loan type. Generally, applicants should be Indian citizens aged 21 to 58. Salaried individuals should have at least 6 months of work experience. In contrast, self-employed professionals should have a minimum of two years of business continuity. A minimum monthly income of Rs. 15,000 is also typically required.

Reasons to Choose a Short-Term Loan

Short-term loans offer several benefits that make them an attractive option for urgent financial needs:

• Quick Application Process: The 100% online application process means no physical paperwork or branch visits, allowing you to apply for a loan in minutes.
• Quick Access to Funds: The lack of collateral requirements, the digital application process, and minimal paperwork enable lenders to evaluate and approve your application quickly, giving you almost immediate access to funds.
• Cost-Effective for Short-Term Needs: Short-term loans usually have lower interest rates than credit cards and other loans, making them a cost-effective solution for urgent financial needs.
• Manageable Monthly Instalments: Flexible repayment terms enable you to pick a tenure with budget-friendly EMIs to make repayment manageable.

Final Word

A short-term loan in India offers a quick and convenient way to meet your immediate financial needs. Whether it's trade credit for your business, a bridge loan for a property transaction, a personal loan for a wedding, a demand loan against your savings, or a bank overdraft for cash flow, there's a short-term loan to suit every requirement.

Short-term loans are an excellent choice for urgent funding, as they have quick disbursal, flexible repayment options, minimal documentation, and immediate financial relief.

So, next time you need quick cash, consider the various short-term loan options available and choose the one that best suits your needs. Happy borrowing!