If you are in need of emergency funds and yet not want to be burdened by loan repayment for many years, then you should opt for short-term loans. Leading financial website like smallbusiness.chron.com/advantages-short-term-debt-2038.html talks about the advantages of short-term loans over long ones. That is because when you take loans for a longer duration you will have to make repayments for a significant part of your life and you also end up paying more interest to the lender. All this can lead to a lot of financial as well as mental stress. Find below benefits of availing loans for a short term.
Speed: If you are in need of money urgently then short-term loans are beneficial as you can get it faster than long-term loans. The reason being lenders conduct only a necessary check of background before lending loans for a short-term whereas long-term loans take longer for approval as there is a lot of verification of the applicant before disbursing the loans. If you have a small or medium-sized firm and need funds to recover from financial setbacks, these loans can be a boon for you as your loan gets approved quickly and you can get out of this tricky situation.
A lesser rate of interest: The longer tenure you take for repayment, the more interest gets added to your principal. When you avail loans for a short term you pay the money back quickly and there you pay lesser interest on the principal. You may feel that the interest rate is higher than the long-term loans, in the long run, you save a lot of money. Note that many lenders charge higher interest rate when you do not have any assets to show. If you have an asset opting for a mortgage with a short-term will have a lower rate of interest. That way you will be saving on the interest rate as well as the time for repayment.
Flexible: If you have a small business the cash flow will have variations, and you may need capital for the company’s expenses like employee salary, bills or other cash needs. Lenders offer a short duration finance option called overdraft where they pay for your business’s financial requirements while they charge for providing this facility. A long-term loan turns out costlier than a short-term one in such situations. Also, prepayment of long-term debts involves a fee and hence an added cost.
Repay loans quickly reduce stress: When you take a long-term debt, and see the interest grow, and the principal does not reduce it can affect your mental as well as emotional health very badly. But with short duration loans, you return the debt quickly and hence a load of your mind is taken off. Moreover, with the economy being volatile, it is difficult to determine your financial future. In a long-term debt, you will have to make payments for a long time whether or not you have the finances, whereas in a short-term loan you can budget your repayment efficiently.