For the smooth functioning of a business, you need a constant influx of finances. Obtaining sufficient funding for construction projects can often prove to be challenging. In such cases, seeking financial assistance from banks may be a viable option. One popular solution for obtaining the necessary funds is to apply for a short-term loan. In Australia, numerous banking and non-banking institutions offer this type of loan facility. This blog aims to provide a comprehensive understanding of the key aspects associated with short-term loans and the benefits that come with them.
What are short-term loans?
The type of loan obtained to support a temporary personal or business capital need. It is a type of credit that involves repayment of the principal amount along with the interest before the due date. This is usually repaid within a year. Since the repayment duration is of a year or lesser than it, it is termed a short-term loan.
Things to consider when applying for a short-term loan in Australia
As mentioned above, there are several short-term loan providers in Australia, and finalizing the best option can be a daunting task. To overcome this perplexity, the following plot has filtered out some of the key tips that will help you in this process.
Purpose of the loan: Before you go ahead to apply for this loan, it is important to have a clear understanding of the purpose of the loan and how you plan to use it. Some of the short-term loans are better suited for specific purposes like consolidating death or overcoming unexpected or unsolicited expenses in business.
Interest rates and fees: In this process of applying for this loan and its approval takes lesser time, these loans come at a higher interest rate. Hence it is paramount to run through the interest rate charged by the bank and also acquaint yourself with the other charges asked by the bank. This will help you get the best deal.
Repayment terms: It is always beneficial to look at the repayment terms asked by the bank. Knowing the repayment schedule will help you make a clear decision and also plan your budget accordingly.
Creditworthiness: Since the lender will be looking at your creditworthiness, it is important to run through your credit score before applying for this loan. A better credit score will increase the probability of approval of a loan application.
Lender credibility: In addition to checking your creditworthiness, the borrower should also focus on the credibility of the lender. They should be licensed and reputed. Make sure there are licensed by the Australian Securities and Investments Commission (ASIC). You can check this on the ASIC website.
Penalties and charges: Whenever you are applying for a loan it is advisable to check the penalties charged by the bank. This may vary from one institution to another and hence quick run-through of these charges is always helpful.
It’s important to be aware of the risks associated with short-term loans and to use them responsibly. Make sure you fully understand the terms and conditions of the loan before signing a contract and be sure that you can afford the repayment schedule.
Benefits of short-term loan
Quick access to funds: When you are in a dire need of funds, you cannot wait for the entire banking process and approval procedures. In such cases, short-term loans come as a rescue. They have shorter processing time thereby giving you instant financial assistance in case of unexpected emergencies.
Flexibility: in comparison to traditional loans, short-term loans have better flexibility. They can be utilized for a wide range of purposes, including addressing unexpected financial shortages in the operation of a business. The ability to quickly obtain funds through a short-term loan can prove to be a valuable asset in addressing unexpected financial needs.
No collateral: Some short-term loans don’t require collateral, which means that you don’t have to put up any assets as security for the loan.
Credit building: For some reason, if you have a limited or poor credit history, then you can take a short-term loan and repay it within the given time frame. This will help in building a strong credit score.
No long-term commitment: Short-term loans have shorter repayment terms than traditional loans, which means that you are not committed to paying back the loan over a long period.
Point of caution
Here it is important to mention that short-term loan comes with a higher interest rate. Hence, it is important to make the right comparison and do a complete review of the lender before finalizing it. The above-mentioned pointers will help you in this process.