What is a Short term Personal loan?

short term personal loan

A loan is basically an amount of money that a person borrows from any source for a particular period of time. The person then pays back the amount along with the required interest amount. The definition of short-term loans is pretty clear from the name itself. A ‘short term loan’ is basically a loan that you need to pay back within a short tenure. The general tenure for a short term personal loan is one year. Also, often the amount of money that you borrow in terms of short term personal is relatively smaller.

In other words, a short term personal loan is an amount that you would usually opt for during an emergency.

Some of the most important information that you need to have about a ‘short-term personal loan are:

  • These are usually small amounts of money.
  • The payback tenure for these loans is generally short.
  • The approval time for these loans is also shorter than other types of loans.
  • Generally taken during an emergency
  • Need a good credit-score
  • These loans usually have higher rates of interest.

There are various reasons why you must prefer opting for a short term personal loan rather than a normal loan. The reasons are:

  1. You can expect to get the approval of your loan within one to two business days. Generally, the loan approval time is longer and may also require a lot of paperwork. But a short term personal loan is relatively easier to avail.
  2. You can use the money that borrows as a short term personal loan for various purposes. It can be an emergency purpose like a car repair or any other unexpected emergency of money.
  3. You get the money in your hand within a blink. Right after you receive the approval of the loan, the bank or the source will transfer the whole amount to your bank account.
  4. Short term personal loan may offer you a flexible tenure of repayment. You may choose to repay the amount weekly or bi-weekly.
  5. Usually, the short term personal loans are unsecured types of loans. That means that you do not need to put any asset at risk and you will be getting a loan amount without any kind of collateral.
  6. If you have a good credit history, you can get a loan for a pretty lower rate of interest. But in case of a short term personal loan, it is important to have a good credit history.
  7. With a good score, you can get higher borrowing limits. This will depend on your existing credit history and your existing debts. If your credit score is good, you can get higher borrowing amounts.

 

Due to the above reasons, short term personal loans are very popular these days. But, one thing that you must keep in mind is that if you have a bad credit history, the bank might refuse to give you a loan on lower interest rates.

Is short term personal loan good for your credit score?

short term personal loan

What is a credit score?

When you go for a loan, the most important thing that you keep in mind is your credit score. A credit score is basically a number that is assigned to you by means of some complex algorithms. When you request for a credit check, all of these algorithms will come into account. They will say how capable a person is off making some regular payments in the future. The higher the number, the better is your credit score. And, the better your credit score, the higher the chances are for you to get a loan.

Are short term personal loans good for your credit score?

Now, the question is, whether a short term personal loan has any impact on your credit history. So, the answer here is ‘Yes!”. A short term personal loan can be helpful in improving your credit history. This is because someone can take out you a small personal loan and then can set the money aside for making payments each month. As long as the person keeps on paying the loans on time, he or she is able to pay off the loan. Thus, he or she will be getting additional credit scores. 

So, you can do simply do this for few times for establishing a good history time to time payments. In other words, if you are able to pay off your personal loan in a timely fashion, this would have a positive impact on your credit score. As you develop a good credit score, it will further help you demonstrate the fact that you can pay off your debts in a responsible manner.

You can also say that this is one of the biggest advantages of taking a short term personal loan. If you clearly pay off your loans, you will end up having a much-improved credit score.

Can a student apply for a personal loan?

It is often a big question in the minds of people that whether a student can apply for a personal loan. 

The students often need to consider a great variety of financing resources while building their college funds. Personal savings and Federal student loans should all be a part of the college plan of every student. However, even these resources can leave the students with a sizable amount of unmet needs. Personal Loans tend to offer an answer, and can help in supplying the necessary funds in order to fully complete a workable college fund. Personal loans can help the students meet the outstanding tuition costs, as well as provide funds for various other expenses. Those expenses can be such as room and board, computers, books, and related college necessities.

Before considering any personal or private student loans, it is necessary to first exhaust all other forms of financial aid. This cannot be stressed enough. Many a student has been undone by taking on more debt than they can handle. So, it is necessary to restrict borrowing, particularly private sector borrowing, to an absolute minimum.

How to apply for a personal loan for a student?

Personal student loans are not as abundant as most of the private student loans. The criteria for qualifying a personal loan for a student can be very strict. And also, the terms and conditions of the loan tend to be much more restrictive than even a general private lender loan for college. Students pursuing a personal loan for college must meet the underwritten requirements:

  • The student must enroll himself at least half-time in a degree program at a recognized college, community college, university or vocational school
  • Student Applicants must have a good credit history to be a sole borrower.
  • The students with little, or no, credit history should have a cosigner.
  • Student, and the cosigner, must sign a legally binding promissory note guaranteeing repayment of loan principal, and all accruing interest.
  • Students must show the proof of adequate income, as per the individual lender’s requirements.

The Interest Rates And Personal Loans:

Personal student loans typically tend to have higher and variable interest rates. The accompanying interest rate is one of the most important features to be considered while applying for any personal loan. It will determine how much money the borrower will need to repay, over and above the loan principal. Students with low credit scores are actually subject to much higher interest rates, and it is advisable that most of the students consider a cosigner for helping them secure the most attractive lending rates possible for their loan.

You must remember that the first and the most prior lender is how much student debt you have. It is important to remember how it compares to your income. This, along with other debts you have, will decide your debt-to-income ratio or DTI. Simply put, this is the percentage of your monthly income that you have spent on debt repayment every month.

Can a person have more than one loan simultaneously?

Inflation in the modern market has led to a rise in the price of almost everything. With high prices, we often come to need some kind of financial assistance. Loans are a popular means to fulfill your instant financial needs. They can be an efficient help for various purposes like buying a car, a house, or for your education, emergencies and any other personal needs. Before discussing if one person can apply for more than one loan let’s cleare few things. Loans are used for other reasons like vacations, clearing IT dues, and other utility purposes, apart from asset building and productive purposes.

What to keep in mind before raising a loan? 

It is absolutely necessary to put in good thoughts before getting a loan. Paying back loans, and the hefty interests for a prolonged time can be an extra burden for us. We have to decide how suitable it would be for us to raise a loan. More importantly, what purpose are we using it for is to be considered. A loan must be put to productive use, instead of luxuries. Keeping that in mind, there are several other factors financial services take into account before giving you a loan. Along with that, there are other things that must be kept in mind before you get a loan.



Eligibility criteria for a loan
The most important criteria to get a loan is to have a source of income. Whether its a business or a salaried job, lenders look into your income source before giving you loans in India. You can also get a loan showing an asset. The asset has to be valuable enough to get the amount of loan you applied for. If the lender feels your income is not sufficient enough to service the loan, they might refuse to provide the loan.
Credit History
Your chances of getting a loan from financial services and banks depend a little on your credit history. A stellar credit score and history increase your chances of getting a loan. It also increases the amount of money you are eligible to receive. A person who does not have a credit history can also get a loan. But, the amount of loan and the interest rates are affected.
Rate of Interests
Different lenders and banks provide loans at different rates of interest. This is to lure more customers. A little research and asking around to get the best deals is the most suitable way to get a loan. You have to ensure that you are getting the best rates in the market. The rates of interest also vary upon the kind of loan you are looking for. Along with that, it might also be affected by your credit history. A stellar credit history leads to lower rates of interest. You can also bargain with the bank about rates of interest, monthly EMIs, and the total payout based on your credibility.
Age
Your age is also an important factor in getting a loan. Lenders prefer young people and provide loans more easily to them. They also provide loans to elderly people with a good sum of savings or with a commendable value of assets. The rates of interest on various loans also vary with age and a few other factors like your savings and asset.
Purpose
The purpose of your loan determines the kind of loan you get, the rates of interest and other specifics of the deal. Car, home, personal, education, business are a few kinds of loans with different criteria and rates of interest. Any financial service looks into the scope of your investment before lending you.
Can a person have more than one loan simultaneously?

When it comes to personal loans it is relatively easier to get multiple loans in India. Various financial services have various policies in lending more than one loan to a person simultaneously. There is no mandate on how many personal loans a single person can get simultaneously, by the RBI or any other banks. But most lenders usually have a limit of 2 to 3 simultaneous loans for a single person. Although, getting more than multiple loans in India does have a few eligibility criteria.

1. The adequacy of your income is an important factor in deciding whether you get more than one loan simultaneously. The lender’s chief concern is your ability to pay back or the Debt to Income Ratio. An optimum 25-30% DTI is preferred by lenders. It is a comparison or calculation between your debt and income.

2. If your business is listed and reputed, it is a positive factor in getting you multiple loans. And, if you are salaried, your association or employment with a reputed firm or government agency is an influencing factor.

3. Credit History is an important factor here. Having a credit history that reflects timely and continuous repayment of loans proves to be favourable for you. Banks prefer to lend to individuals with a high credit score and leans more to provide them with multiple simultaneous loans. 

4. Having a co-signer towards the loan proves to be more opportunistic in receiving more than one loan simultaneously. Banks are more willing to lend to people with collaterals. 

5. The kind of relationship you have with your lender or bank is an essential and decisive factor. This will obviously depend on your previous banking and credit history.

6. Age, nationality and geographical restriction are a few other criteria that are considered by lenders. Though not uniform, different financial services have different criteria when it comes to these factors.

Having said all that, keeping the number of loans you take to a minimum is wise and preferable. There are various offers from financial services offering loans in India. t is wise to keep a fair idea about the market offers and deals. Maintaining a good credit score is also very necessary in modern times. Most of all, ascertaining if the loan is absolutely necessary is prime. Any decision you take must depend on the answer to this question. 

DIFFERENCE BETWEEN PERSONAL LOAN AND PROPERTY LOAN:

When you are going to apply for a loan, you must be aware of all the aspects of the type of loans. This will help you choose the right type of loans, that best suits your requirements and profile.

Personal loan and loan against property are the two most popularly used ones. There are some basic differences between a personal loan and property loan.

The differences betwen these two type of loans are:

Let us first talk about ‘personal loan’:

What is a personal loan?

Personal loan is an unsecured type of loan. You can raise a personal loan from a bank for any of your personal use. There is no restriction on the proceeds of the amount of loan. You can use such personal loans for various purposes like paying off your debts, build or renovate a house, setting up a business and also for affording the expenses of any wedding.

What is a property loan?

A property loan is a secured type of loan. You can take a property loan by mortgaging any of your personal property. It can be personal property, a piece of land, and commercial property. 

In the case of property loans, also there are no restrictions on the proceeds, just like the property loans. You can use such loans for financing your child’s education, a wedding, constructing a house, meeting medical expenses and to buy a vehicle and also for financing your own business.

How to choose between the two?

The processing time of these two type of loans: 

You achieve a LAP by mortgaging a property, you have to verify some related documents before you disburse the loan. You also need to undertake some technical studies to confirm ownership. Also, you may need to submit documents supporting your income. 

Interest rates:

The interest rates of the Loan against properties are usually lower than the personal loans. The rates can be anywhere between 11% to 16%. While the rates of interest of personal loans can be somewhere around 24%.

Tenure of the loan: 

In the case of a property loan, the tenure can be around 15 years, while the upper limit of the tenure of personal loans is 5 years. The longer the tenure, the lesser is the EMI payouts. This eventually enhances the affordability of big-ticket loans. But, longer tenure can also result in higher interest payouts.

The credit score of the borrower mainly decides these factors.