Jaspreet Singh, 23, needed a small loan of Rs 20,000 to finance a vacation he had planned with his friends. A young professional in his first job, Singh’s request was rejected by various banks as he had no credit history, and also because most banks do not offer loans for such a small amount. He was going to cancel his trip, when a friend told him about short-term personal loans. Singh applied online and had the amount in his bank account within a day.
Short term personal loans, offered by new-age fintechs and digital lenders, are quick financing options for solving temporary shortfall of funds. Like personal loans, they are unsecured loans with no restrictions on the end usage of the funds. Here’s everything you need to know about them.
Quick disbursal of funds
One of the key features of short-term personal loans is that they are disbursed quickly. They provide swift and hassle-free access to money for borrowers without involving a lengthy loan approval process.
No collateral required
Short-term personal loans do not require any collateral since these are short-term unsecured loans involving smaller loan amounts. This really works for young salaried professionals who may not be able to get an unsecured loan from a bank in the absence of credit history.
Minimal or nil documentation/ paperless loans
As these loans are mostly available online through various apps and financial marketplace, they involve minimal documentation depending upon the customer’s profile. Short-term personal loans offer a complete paperless experience to customers.
Flexible repayment terms
Short-term personal loans offer flexible repayment terms, depending on the tenure of the loan. In case your repayment tenure is less than 30 days, you would have to pay through bullet repayment option wherein you pay full loan amount towards the end of the tenure. On the other hand, if your loan tenure is more than 60days, you would have to pay through EMIs. Additionally, for short-term personal loans, the option of repayment through digital payment modes such as RTGS, NEFT and UPI are also available which further enhances customer’s convenience.
No need for long-term commitment
Risk factor associated with short-term personal loan is minimal, given that shortterm personal loans involve smaller sums and are offered for a shorter tenure. On the other hand, long-term loans involve commitment for longer period of time which increases the risk of default due to uncertainties. You can opt for a short-term loan without having to worry or compromise on any long-term goal. While short term personal loans have many benefits and offer great convenience, they do have certain drawbacks which the borrower needs to keep in mind. These loans are generally offered only to the salaried class and also involve a significantly higher interest rate (1.5-3.5% per month) and processing charges compared to long-term personal loans provided by banks and large non-banking financial companies.
The writer is associate director, Unsecured Loans, Paisabazaar.com