Whether you have a medical emergency, need to handle home repair and improvement projects, need to cover a cash flow gap, or leverage a promising business opportunity, short-term loans provide easy and quick access to the funding you need. A short-term loan is a lender financing with a payment term of 12 months or less. Short-term loans are ideal when you urgently need to borrow a small amount of money. If you are thinking about securing a short-term loan to solve a temporary individual or business cash flow issue, here are four options to choose from.
1. Family loan
A family loan refers to money borrowed from your spouse, family, and close friends. This type of loan is among the cheapest short-term lender financing options since friends and family are likely to charge little or no administrative costs or interest rates. Friends and family will rarely demand a credit report, so you will likely secure financing even when you have a bad credit history. Here are tips for borrowing cash from family:
- Borrow only what you need
- Have everything in writing. Ensure the IOU clearly outlines how much you owe, the payment term, and how much you should pay every month.
- Repay the loan promptly. Defaulting a family loan could hurt your relationship with your loved one, so ensure you pay back the loan regardless of what you may be going through.
2. Payday loan
A payday loan is an emergency short-term lender financing that should be repaid in a lump sum by the next paycheck. Unlike a traditional loan, payday lending companies do not check credit history or verify documents to approve a loan, resulting in fast approval and processing time. All you have to do is apply for e-transfer payday loans and get cash within 24 hours.
To repay a payday loan, you should write a check for the entire amount (the principle and interest), which the lending company will cash once your loan is due. Alternatively, you could allow the lender to access your bank account, credit union, or prepaid card to deduct the amount you owe on the due date.
However, payday loans attract high-interest rates, usually 400% APR. If you default payment, your loan could be rolled over to the next month, but you will incur additional charges.
3. Invoice financing
This lender financing type entails using your company’s account receivables (unpaid invoices by customers). The lending entity often loans a specific amount and charges interest based on the period the invoice stays outstanding. Once the invoice is paid, the lender interrupts the payment to deduct the principal plus interest before sending what is due to your business.
4. Peer-to-peer loan
This type of lender financing entails matching borrowers with investors, individuals who want to earn income on their savings. Instead of borrowing cash from a traditional bank, peer-to-peer lender financing allows you to source cash from an individual or group. Peer-to-peer lending is regulated by the Financial Conduct Authority (FCA), providing consumers with protection in the case of discrepancies.
The amount you could borrow and the interest charged in this type of lender financing depends on various factors, including your credit rating. If you have bad credit, you will likely incur higher interest rates than those with excellent credit history.
A short-term loan is a lifesaver during emergencies or when your business is facing cash flow problems, especially when you have a less-than-ideal credit score. Familiarize yourself with the above short-term loan options to pick the right one.
Also Read: Pros and Cons of Short-Term Auto Loans