Introduction 

Short-term loans are generally extended by financial institutions for 1-2 years. These are mostly unsecured, which means you don’t have to pledge collateral as security to avail them. Though funds can be extended quickly, the reason why they are labelled “short-term” is the associated repayment tenor (to be paid off in full within 6-18 months) rather than the speed of funding. Short-term loans are beneficial for individuals who are unable to get loans for a longer tenure from a bank or a lender due to various reasons.

Different Types of Short-Term Loans

Short-term loans are different from the other conventional ones in the market because of the ease of availing them. However, there are many short term loans in India offering you the funds you need to meet any short-term financial need. Here, we try to cover the ins and outs of the 5 most popular sources of short-term loans, to help you make an informed decision when it comes to availing short-term finance.

  • Trade Credit – Considered to be one of the most affordable sources of obtaining interest-free funds, you can avail a trade credit where the lender would give you the time to pay for a purchase without incurring any additional cost. Trade credit is usually extended for 30 days. However, you can consider asking for a longer tenor that would easily fit into your plan. A flexible repayment tenor will allow you to leverage the additional time and funds to finance other initiatives.

  • Bridge Loans - A bridge loan helps to tide over till the time you get another long-term and larger value loan approved. In India, such a loan assumes importance in case of transactions relating to the property. For example, if you want to buy a new house but don’t have sufficient funds because the old one hasn’t been sold off yet. You might want to wait for the funds to come through once you get a potential buyer for the old property, but this will have its downsides, including the price of the new property shooting up. It is during this waiting time that you can avail a bridge loan, that offers two-pronged benefits- it helps you with the funds to buy the property while giving you ample time to wait and get a good deal on the old one.

  • Demand Loans – This loan comes handy while meeting any urgent financial obligation. You can pledge your insurance policies and other savings instruments such as NSCs in lieu of the loan. A certain percentage of the maturity value on such savings instruments will determine the extent to which you will be eligible to borrow as the loan amount.

  • Bank Overdraft – Bank overdrafts can be sought on your current account. With an overdraft facility at your disposal, you will be able to withdraw money despite your account not having sufficient cash to cover such withdrawals. Essentially, it helps you to borrow money within a sanctioned overdraft limit. Much like any other loan, an interest rate (often lower than that on credit cards) is levied on the outstanding overdraft balance. Having said that be wary of certain additional costs that might be attached with such a facility, including fees per withdrawal.

  • Personal Loans - You can seek a personal loan to meet a variety of needs such as home renovation, wedding, higher education or travel costs. You could also use a personal loan to meet a medical emergency or consolidate all your existing into one. Many lenders offer a personal loan based on your income level, employment and credit history, and perceived capacity to repay. Unlike a home or car loan, a personal loan isn’t a secured one. This simply means that the lender will not have anything to auction in case you default on repaying the loan amount. What differentiates a personal loan from all the above loans is that it gives you a substantial loan amount with flexible tenor to facilitate repayment.

Short-Term Loans Interest Rates Comparison

Here are some of the lenders that offer short-term loans in India:

1. CASHe

  • Interest Rate - 1.75% to 3.25%

  • Loan Tenure - 15 days to 12 months

  • Loan Amount - Rs.5,000 – Rs. 3 Lakhs

  • Benefits:

    • It only charges a nominal processing fee for the short-term loans that it offers. The processing fee starts from Rs. 200 onwards.

    • For loans that have a tenure of over 30 days, a grace period of 7 days is offered for repayment of the due amount.

    • The lender assesses your creditworthiness by taking into account several factors including your social media activity, monthly income, educational qualification, and work experience.

2. EarlySalary

  • Interest Rate - 2.5% per month

  • Loan Tenure - 7 days to 43 days

  • Loan Amount - Rs.8,000 – Rs. 2 Lakhs

  • Benefits:

    • You can use the loan amount in any manner and the lender does not impose any restrictions.

    • There are no hidden costs or pre-payment charges that are levied by the lender.

    • Borrowers are charged an interest based on the number of days that they use the loan amount.

3. Bank of Baroda

  • Interest Rate - As per the lender’s terms and conditions

  • Loan Tenure - Up to 12 months

  • Loan Amount - Rs.10 lakhs – Rs. 250 Lakhs

  • Benefits:

    • This loan can be availed by small and medium enterprises that have a yearly sales turnover of up to a total of Rs.150 crore.

    • The lender offers a 25% concession on the applicable processing charges.

    • This loan is ideal for individuals who require a large quantum of funds for temporary business-related needs.

4.Money in Minutes

  • Interest Rate - 0.25% per day onwards

  • Loan Tenure - 1 day to 6 months

  • Loan Amount – Rs. 1,500 - Rs. 2 Lakhs

  • Benefits: 

    • Individuals over the age of 18 years can apply for this loan.

    • Loan applications are verified and approved quickly.

    • Once the loan amount is repaid, customers can avail a second personal loan for a lower interest rate.

    • Individuals who have defaulted on previous loan/credit repayments can apply for this loan.

5.PaySense

  • Interest Rate - 18.00% - 36.00%

  • Loan Tenure - Upto 5 years

  • Loan Amount – Rs. 1 Lakh – Rs. 5 Lakhs

  • Benefits:

    • The repayment amount can be auto-debited from your account. This ensures that the EMIs are repaid on a timely basis.

    • The lender offers loans even to individuals who do not have a credit history.

    • The lender offers speedy processing of the loan application.

End Note

Short-term loans can be used for a wedding, a family vacation, home renovation, education expenses, buying products such as electronics or furniture, establishing and expanding business or paying for a sudden medical emergency. These are easily available from various lenders and at competitive interest rates.