Short Term Loan: Know the do’s and don’ts before opting for one

An advance salary loan is an EMI-based loan, wherein the borrower can withdraw 2.5 times of his/her net monthly salary. The money can be paid back in 3/6/9 or 12 months.

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Aspirations and financial needs are undergoing changes, and to meet these lifestyle and other emergency needs, digital NBFCs are offering customized short-term loans. Short-term loans are generally offered for a period of a year or less than a year. These short-term loans are basically designed to fulfill the short-term needs of borrowers as well as have a short repayment tenure ranging from a few days to a year. These loans are categorized into various categories such as an advance salary loan or a personal overdraft that acts like a credit card at the interest rate of a personal loan.

An advance salary loan is an EMI-based loan, wherein the borrower can withdraw 2.5 times of his/her net monthly salary. The money can be paid back in 3/6/9 or 12 months. Satyam Kumar, CEO, and Co-Founder, LoanTap, says, “The advance salary loan option works the best when one has an urgent financial responsibility to fulfill and can range from anything like spiked electricity bill, car repair which is not covered in insurance or even planning a reunion which was unexpected but cannot be avoided.”

A personal overdraft loan, on the other hand, is an interest-based payment. The borrower pays interest on a monthly basis on the amount withdrawn from the lender. Kumar adds, “Personal overdraft loan can be taken when one is not sure of the amount that he/she will need, like home renovation, medical emergencies not covered in insurance.”

Here are a few do’s and don’ts to nurture before opting for a short-term loan:


1. Plan your Instalments: While short term loans make temporary cash available to make expenses fit one’s pocket, one should keep in mind to borrow only the required amount, which can be repaid in easy installments.

2. Timely repayments: While short term loans serve the borrower cash on-the-go, returning the money with timely payments of the EMIs is equally important. Timely payments of EMI also ensure a good credit score and more possibilities of obtaining loans from the same lender in the future.

3. Introspect your finances: It is imperative to research before opting for a loan. While opting for a loan, keep some room for emergency expenses, along with ongoing personal and professional circumstances, be it a job change in the upcoming months, or a newborn in the family. Experts suggest, a borrower should keep all this into consideration, while including paying their monthly EMI’s.


1. Take cyclic loans: There are short term loans that need to be cleared within a few days of salary credit. Some borrowers who are unable to pay back,
take an additional loan to clear the previous loan. This cycle then becomes tough to break and generally leads to a debt trap kind of situation. Hence, one should be cautious of his/her own repayment capabilities and loan amount before taking a loan.

2. Overspend: When one loan is going on and as a borrower, you have an existing debt to pay, it is wise to keep your spending habits in control. Overspending is only going to burden you with more debt to clear off. Additionally, if you take one loan to clear another, it does not serve the purpose; you will still have EMIs to pay for the other loan.

3. Be greedy: These loans can be opted by any salaried professional who earns a minimum salary ranging between Rs 20,000 to Rs 30,000. They are instantly available by submitting minimum documents, and after post necessary verification, the loan is disbursed within a few hours. As these loans are simple and easy to avail, many tend to be greedy and opt for a loan amount more than what they need. It is suggested to borrow the amount that is needed, as this will help the borrower to clear the debt easily.

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