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What is a short-term loan?

Short-term loans have recently become very popular in the world. In principle, interest in them is understandable, because for their receipt, as a rule, you do not need to collect a whole heap of papers, and the registration procedure is much faster than with long-term borrowing. However, anyone who would like to take such a loan, it is desirable to know in more detail what it is.


Short-term loan, the same urgent loan in cash

One of the most common types of short-term borrowing can be called an urgent loan in cash. It is issued for a period of not more than 2 years (however, most often this period does not exceed a year). Such loans can be secured, that is, with the provision of collateral or guarantors, and unsecured - without giving the bank any guarantees of repayment. It is also possible to borrow urgently with the use of the targeted program - this is when the lender reserves the right to control what borrowed funds are spent on. Although most often our fellow citizens use this type of short-term borrowing as a loan for urgent needs.

Overdraft - as a type of short-term lending

Also in recent years, many people have started using overdraft loans. Overdraft allows the holder of a plastic card to use funds in excess of the established limit. As a rule, such an opportunity is actual for holders of debit or salary cards. For example, you receive a salary in a certain bank, that is, for this institution you are not a stranger, so he (the bank) can regularly provide you with small loans if necessary. In practice, it looks like this: your salary is 20 thousand dollars, but sometimes there are times when you need to spend more than there is on your card account, that's when your overdraft is needed. As a rule, the amount of the overdraft limit is not very large and does not exceed the size of the monthly income, and it should be returned as soon as possible and, of course, with interest.

Is the credit line a short-term loan too?

The credit line can also be considered as one of the types of short borrowing. As a rule, it is used by large companies and businessmen. The essence of it is that having issued a loan once, if necessary, you can use borrowed funds, then when you need it. And interest will be charged only on the funds used, and not for the entire amount of the loan. For example, a bank issued a loan of 200 thousand dollars, and you used 50 thousand - in this case, the interest rate will be applied only to 50 thousand, and until you return them, you can’t dispose of the remaining funds. 

However, as soon as this tranche is repaid - all 200 thousand will be at your disposal again.

Advantages and disadvantages

As we all already understood, the main advantages of short-term bank loans are that there is no need to collect various certificates and a minimum amount of time spent on processing such a loan. As a rule, banks do not apply penalties for early repayment of such loans. In principle, all the positive aspects of this type of borrowing are simplicity and convenience. However, as we know, the more loyal the conditions for obtaining a loan, the tighter the conditions for its repayment. Short-term credit in this case was not an exception, because it is not profitable for banks to issue such loans at low interest, because in that case they will not get the desired profit. Also, the lender increases the rates in order to compensate for his risk of losing money, as loans

for a short time are issued, in most cases, under simplified conditions and with reduced requirements for borrowers. So it turns out that the favorite advantages of this loan product, give rise to its main shortcomings. If you want more info, you can get from here.
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