More About Personal Loan

OVERVIEW:

Different people have different financial needs, often spread out between long-term goals and short-term financial needs. Various loans lent by banks and financial firms can also be divided based on the needs and tenure of the loan. Loans that run for an exclusively shorter period such as 120 days, 12 months, and 6 months, etc. are known as short-term goals. Bridge loans, personal loans, consumer loans, and demand loans are a few examples of short-term loans. Similarly, loans for a tenure longer than three years are called long-term loans. Loans against property and home loans fall in this space.

SHORT TERM LOANS:

Short-term loans are offered with short repayment periods. They are given to both commercial entities and individuals. These types of loans are characterized by shorter tenures, lower principal amounts, and higher interest rates. Short-term loans are easy to get because the amount involved in them is tangibly small. They also consider their income and financial stability to approve a short-term loan. Because of the higher interest rates, banks prefer to give short-term loans.

PURPOSE OF SHORT TERM LOANS:

For a business/company: Once the business is set funds become critical to meet day-to-day expenditures and other operational needs. Also, for individuals, people facing financial crunches, short-term loans are the saviors. For example, raw materials are purchased at regular intervals, water and electricity bills have to be paid on time and workers must be paid wages, etc. Moreover, there are other requirements associated with it. Thus, there is a continuous necessity for capital that helps in fulfilling the operational needs of an organisation.

     •    Short-term loans are working capital funds that meet the immediate requirements of the business. They also perform the following functions:
     •    They help in facilitating the smooth running of business operations by meeting day-to-day requirements.
     •    They allow the businesses to grow without any hassles and burdens arising due to the shortages of liquid funds.
     •    Short-term loans enable firms to hold a stock of raw materials which, helps in smoothing out fluctuations resulting from an unexpected rise in the demand.
     •    With the availability of short-term finance, goods can be sold on credit, which is another plus point.

BENEFITS:

They are fundamentally important to increase the volume of production on short notice.

     •    For an individual: There are plenty of situations in which a person needs cash to meet his financial requirements. So, to meet such needs, a short-term loan is a great alternative. The individual borrower does not dip into his investments, assets, and savings.
     •    Flexible loan amount: For short-term loans, the loan amount ranges from Rs 1Lakh to Rs 50 lakhs. So, whether you are an individual or a business, you can avail of a loan.
     •    Customized credit criteria: Most banks understand your requirements. Therefore, they customize the credit underwriting parameters as per your convenience.
     •    Picked Loan Tenure: Short-term loans allow you to choose a flexible repayment tenure ranging from 6 months to 36 months. It depends on the nature of your repayment capacity.

Features of a Short-Term Loan

     •    Flexible end-user benefit: Short-term loans are multi-purpose loans. It is utilized for organizing a wedding, renovating your home, taking a family vacation, and meeting educational requirements.
     •    No collateral is required: Short-Term Loans are generally unsecured. They do not provide any collateral as security in exchange for the loan amount.
     •    Minimal documentation: The paperwork and documentation that is needed for a short-term loan are very minimal.
     •    Tenure is small: Short-term loans are taken for a very short duration. Its tenure range from 1 month to 12 months (1 year).

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LONG TERM LOANS:

Long-term loans are for those who have a longer tenure period. They can range from a year to 30 years. Usually, long-term loans can be paid off in more than 3 years. Most of them are designed in such a way that they can cater to borrowers belonging to different economic segments. They help in resolving diverse financial needs. People enjoy such loans with maximum benefits from schemes offered by various financial institutions. These loans cover financial needs related to personal requirements like home, wedding, education, etc.

Features of long-term loans:

     •    High loan amount: They are given huge loan amounts and are secured in nature.
     •    Low-interest rate: Long-term loans are offered at low-interest rates because the borrower has to repay the debt over a long period.
     •    Repayment option: They come with several repayment options. Borrowers can pay the EMIs through ECS (Electronic Cancellation System), cheque or cash, and AD (Auto-Debit).
     •    Tax benefits: Some long-term loans have maximum tax benefits. They reduce the taxable income under the Income Tax Act.
     •    Requirement of collateral: They need long-term security.

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