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What are Advantages and Disadvantages of Short-Term Loans

What are Advantages and Disadvantages of Short-Term Loans

A business survives on the basis of a steady flow of revenue. There are uncountable small-scale businesses in India flourishing in different industries, scattered across different cities. There comes a point in business where surplus funds are required either for buying the stock, hiring additional staff or expansion in other locations. During such times, do not invest your savings instead opt for a short-term personal loan. It is collateral free and requires no security for loan approval.

Here are some advantages of short-term loans that makes it a viable choice:
 
  • Maintains Cash flow:  A consistent cash flow is required to clear the overhead expenses and operational costs in business.  In case of shortage of daily cash flow, small cash loans are a good option. It saves businesses from sinking during the low season and eliminates risk of shutting down.
 
  • Balancing Seasonal Demands: Businesses that experience highs and lows based on the seasonal products undergo financial difficulties as the products are sold only for a particular season. In case extra seasonal products remain, it turns into dead stock. Hence, to cover up this loss for the rest of the year, small cash loans can be borrowed to balance the expenses.
 
  • Handle Emergencies: Emergency situations on the business front are quite expected. In case of natural calamities, technical breakdown, equipment repairs or connectivity issues, short-term loans can help to with stand the emergency expenses.
 
  • Improve Credit Score: The credit score increases when EMIs are paid on time. Short term loans are less as compared to long term loan amounts. Hence, can be repaid easily in EMIs without much difficulty. The scope of delayed EMI payments is less in short-term loans.
 
  • Loan Approval: The time taken for a short term loan is quick with minimal documentation whereas a long term loan with a higher amount requires more verification of the borrower’s creditworthiness and assets.
 
 
Like every coin has two flip sides, likewise short and long-term loans are two sides of a personal loan product. Short-term loans are easy to acquire but there are some disadvantages that borrowers should be aware of:
 
  • Higher Interest: As the loan amount is less, the interest rate charged on the loan amount is higher. This makes the repayment figure heavy. So, always look for the prevailing interest rate before applying for any loan.
 
  • Affects Credit Score: Missed or failed attempt to make loan repayment can bring down the credit score. This can create problems in future loan approvals.
 
  • Early Repayment Penalty: You may want to clear the loan at once before the due date. But there are lenders who levy prepayment penalties as the amount of interest charged is not earned as profit.
 
The Simply Cash app is a secured online cash loan app to apply for short-term loans. Self-employed and salaried individuals between the age group of 21 to 58 years can apply for small instant cash loans up to 1,50,000 via Simply Cash.
 

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