What are short-term loans?
Introduction
Short-term loans are loans that have a short repayment period. Typically, any loan repaid within 12 months is classed as a short-term loan. This type of loan offers an alternative to longer-term loans, which involve paying a sum of money back over a protracted period.
Short-term loans offer benefits, but they may not always be the best option. They are recommended for people who need cash quickly.
In this comprehensive guide to short-term loans, we'll discuss what they are, explain how they work and why people need them and highlight key differences between short and long-term loans.
What is a short-term loan?
A short-term loan is a financial product, which allows you to borrow money and pay it back within a period of up to 12 months.
Often, the repayment period is much shorter than 12 months at between one and 6 months. Finance 27 offers short-term loans with repayment periods between 61 and 65 days.
Short-term loans provide an alternative to long-term loans, which are paid back over a longer period of time. Short-term loans are sometimes called emergency loans.
Key points to understand when taking out a short-term loan include:
- How much you'll pay each month
- The total cost of the loan
- The interest rate
- The repayment period
Why do people need short-term loans?
Often, individuals who apply for a short-term loan need cash quickly. This may be due to unexpected bills or costs or to bridge the gap if they have cash flow issues.
Examples of reasons you may favour a short-term loan over a standard loan include:
- Paying household bills
- Home repairs
- Car or vehicle repairs
- Pet care bills
- Living costs between paydays
- Medical and dental costs
These are just examples of ways to use short-term loans. If your loan application is successful, you can use your money in any way you like.
How does a short-term loan work?
Short-term loans work like traditional loans, but they are repaid within a shorter period.
The application terms vary according to the lender. To secure a short-term loan from Finance 27, you'll need to meet these criteria:
- Be a South African citizen
- Be over 18
- Have a bank account
- Provide evidence of employment
- Pass credit checks
You can apply for a short-term loan online. Once you've found the product you want, follow the instructions, fill in the relevant details and submit your application. If you are successful, the lender will provide your funds within the specified timeframe.
One of the most important and attractive advantages of short-term loans is the speed of access. Finance 27 offers same-day approvals, meaning customers have money in their accounts within 24 hours.
How does repayment work?
Once you agree to the terms of the loan, you'll start a repayment schedule, which is outlined in the loan agreement. You'll pay a sum of money to the lender on specified dates until the loan is paid back in full.
What happens if you can't afford a repayment?
If you miss a repayment, there may be consequences, depending on the lender. If you miss one repayment, Finance 27 charges a service fee and adds interest monthly. If you miss more than one payment, your case may be handed to a debt collection agency.
Missing loan repayments will impact your credit rating and could make it harder to borrow in the future.
How long is the repayment period for a short-term loan?
A short-term loan usually has a maximum repayment period of 12 months, but the schedule varies according to the lender and the specific agreement.
Short-term loans from Finance 27 have repayment periods from 61 to 65 days.
How can I check the repayment period for a short-term loan?
It's important to check the repayment period for any type of loan before you submit an application. The lender will specify the terms of the loan, including the repayment schedule. Always ensure you check these details before agreeing to the loan.
If you think a longer-term loan may suit you better, research different loans and weigh up the pros and cons before you decide which product to apply for.
What is the difference between short and long-term loans?
The main difference between short and long-term loans is the duration of the repayment period. Short-term loans are paid back within 12 months. Long-term loans have much longer repayment periods, often spanning several years.
Other differences include:
- Interest rates: Interest rates tend to be higher for short-term loans
- Loan values: Long-term loans usually have a higher maximum value than short-term loans
- Credit rating and eligibility: Short-term loans may be easier to secure if you have a low credit score
- Speed and convenience: Short-term loans are known for their convenience. They provide quick and easy access to funds.
Which is the best option for me?
If you're looking to borrow money, it's advisable to explore different options and research loans and lenders thoroughly before applying.
There are pros and cons of both short and long-term loans. The best option will depend on individual circumstances. Our experienced advisers at Finance 27 can help you decide which loan is best for you.
You may consider a short-term loan in these scenarios:
- You need money fast
- You can pay the money back within a short period
- You have a low or average credit score
- You're looking for a fast, simple application process
Pro tip: Seek expert advice. Financial advisers can help you understand how loans work, find the best products and offers and navigate the application process.
Conclusion
Short-term loans are loans, which are paid back within a maximum period of 12 months. They often have much shorter repayment periods of one to 6 months. If you need cash quickly, a short-term loan may be the best option for you, but it's always beneficial to research thoroughly and compare products and lenders.
Looking for short-term loans? We can help!
If you're looking for a short-term loan, we're here to help. Contact the friendly, experienced Finance 27 team today.