If there’s anything we’ve learned in recent years, it’s the unpredictability of things. For instance, unexpected expenses and medical bills are only a few of the million matters beyond our control.
Thankfully, short-term loans exist. Yes, you can still build a stable business despite inevitable crises.
But the different term loans can be overwhelming and confusing, especially if you’re not used to borrowing money. Let us help you understand what short-term money loans entail and how you can use them to your advantage.
What Are Short Term Loans?
Short-term loans are small personal loans that often don’t require collaterals or excellent credit history. The catch is that you must pay it back in a short period, usually from 6 months up to a year or less.
You can expect a fast approval process and get funds within the same day! It is beneficial for start-up businesses, those not eligible to loan from banks, etc.
Secured vs. Unsecured Loan
The primary differentiation between the two types of loans is the setting up of collateral. Secured loans would require you to set up either a car or property, which lenders can sell when you fail to pay off your debt. Unsecured loans don’t require you to set up anything but expect a higher interest rate and a shorter repayment window. As mentioned above, short-term loans are mostly unsecured. You can borrow money as a personal loan without the need for collateral.
Reasons to Apply for Short Term Loans
There are plenty of good reasons to apply for a short-term loan:
- You don’t qualify for traditional loans yet because of minimum loan amount requirements
- You need an additional fund for a significant investment
- You are experiencing unexpected bills
- You are in an emergency financial situation
- You did not pass the credit check with traditional banks
A short-term business loan often has a negative connotation, but it’s a normal business occurrence. As long as you’re managing bills well, you won’t plunge into debt, and that personal loan may even give you high returns.
How to Apply for Short Term Cash Loans?
Online application is the most convenient and practical way to do it, although it can be an intimidating risk for some. After all, financial matters are no joke. It’s vital to find direct and trusted lenders who understand the ins and outs of SMEs. Avoid lenders who don’t disclose hidden fees and charges. You may find yourself in more debt than necessary!
Lumi has a free loan calculator you can check out.
The loan calculator can give you a projected estimate of which payment plan you can consider depending on the loan amount you need and financial circumstances, such as your regular income.
An online loan is fast and easy, highly similar to same-day loans. You fill out forms and answer questions in a few minutes; then, you can get an approval response within two business hours at best. After which, you’ll get the money within the same business day.
Of course, a significant part of it has to pay back your loan amount with your agreed interest rate and annual percentage rate. Ask if monthly repayments can lessen your financial burden by the end of the term.
As with all types of loans, there are a few requirements for eligibility. But don’t worry; lenders like Lumi do not complicate these lending criteria’s.
- Australian-registered business
- In operation for at least six months with an annual turnover of $50,000
- Have your ABN / ACN on-hand
- Driver’s license
- Business bank account details
Then there are the standard requirements such as:
- Must be over the age of 18
- A citizen or a permanent resident of Australia
- Proof of identification (I.D., license, etc.)
- Banking history; bank statements
- Proof of payment eligibility
Pros and Cons of Short Term Loans
A short-term loan has advantages and drawbacks so before you apply online, you may want to weigh the pros and cons first.
- A shorter repayment period also means less interest rate
- Less risk because it’s only short-term
- Quick and easy way to borrow and pay off a loan early. Less hassle!
- No more bureaucratic approval processes
- A short time frame may not be plausible for some income
- Loan amounts are smaller than regular plans
- If you take the total into account, a short-term loan is expensive
Safety Tips for Borrowers
The ease of applying for a loan online is enticing. But because it’s easy, extra precaution is needed to ensure that you’re secured and not setting yourself up for endless debts.
Beware of Hidden Fees
Most lenders will not disclose additional fees and charges. You’ll be surprised by the maturity date of how high your due is. Demand transparency and full disclosure of the comparison rate from the start. Some added fees are the establishment fee, default fee, government fee, etc. Not all lenders impose this, so it’s best to know everything included in the loan term before signing.
Borrow for Essentials Only
Avoid borrowing small loans for non-essential expenses like vacations or luxuries. You may also want to think twice if you already have existing debts. A short-term loan is not cheap. Use it only for essentials like emergency car repairs, medical expenses, etc.
Before applying for a short-term loan, you can explore other aids such as government benefits, cash aids, payment plans, or have an independent financial counsellor talk to you if you’re experiencing monetary problems.
The key to security is to be informed and exercise your rights. Reading through the Australian government requirement and blogs like this to research is a good start.
Here are some things that you must know:
- Lenders cannot charge you an establishment fee of more than 20% of your loan amount
- Lenders cannot charge you a monthly fee of more than 4% of your loan amount for account-keeping
- Check if your lender has an Australian credit licence or is registered under ASIC for authenticity
Let’s address some frequently asked questions.
What’s the Difference Between a Small Loan and a Medium Loan?
The main difference is the loan terms. Short-term loans let you borrow small amounts of money up to $2,000, payable in a shorter time, about six months to a year.
Medium loans let you borrow more with a longer repayment window. We’re talking up to $500,000 payable in 1-2 years or more.
Can We Secure a Cash Loan Even With Bad Credit History?
Most lenders don’t mind a low credit rating as long as you prove payment ability. However, a good score and complete bank statements will undoubtedly land you better terms as it shows that you can pay bills diligently.
What’s a Comparison Rate?
A comparison rate is already inclusive of all rates and fees. It shows you the total cost of your short-term loan on top of the actual loan. It’s smarter to ask for the comparison rate upfront to avoid further surprises.
Short-term loans are a viable option for emergencies. There’s nothing wrong with it if you’re fully aware of the terms and conditions. It’s also less risky to entrust your financial loans to knowledgeable direct lenders like Lumi. We believe in transparency, security, and efficiency!
Explore our website for more details if you want to apply for a business loan today or learn more about how small amount loans work.