Different Types of Short Term Loans

Different Types of Short Term Loans

A short term loan has short repayment cycle and thus is easy to get. The amount involved is also typically small. Thus, it is very easy to procure them even when you are on the go. However, these loans are also of various types which can cater to your different requirements. Let us look into some of its most popular types.

Overdraft

This is a short term loan drooled out by banking institutions as a straightforward and convenient way to get out of a sticky situation. An overdraft is referred to as a situation when you have withdrawn more amount of money from the bank than deposited. Both the bank and the account holder then negotiate and come to a mutual agreement on the interest for the overdrawn amount.

Bridge loan

This loan is intended to help you cover your expenses until the time you lay your hands on your anticipated income. This type of loan is often resorted to by small business houses to buy raw materials or pay their employees so that their business does not come to a halt suddenly.  These loans are often secured by assets, sales contracts or any other receivables. Generally, they last up to 90 days and in rare cases, up to a year. These are rampant in real estate transactions to eliminate any gaps between purchasing a property and selling another.

Payday loans

These are short term loans without any collateral which work as your advance salary. These need to be paid back to the borrower as soon as you receive your paycheck. Also referred to as cash advances, these loans often require verification of the person’s employment as well as his salary slip or bank statement. These loans invite massive penalties if the repayments are not made in time.

Money market

This refers to short term loans between any financial institution and the bank. Some of its major feature includes interbank lending, repurchase agreements, etc. This is particularly undertaken by two types of people, one who needs a credit urgently or those who are in real need of profit. These transactions are often wholesale or of large denominations and are rarely between individuals but rather between financial institutions and companies.

Installment loans

Here, a bank first gives a loan to any of its customers and later deduct monthly payments from his bag which includes both the premium and the principal amount. These are often automatically deducted from the bank account till stipulated.

Category Finance

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