When to Consider a Short Term Loan

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At this day of uncertainties brought by different social and personal issues we are facing, more and more people are considering to loan or borrow money to finance their needs. Getting a loan is normal and healthy for as long as you can manage it.

There are different type of loans including term loans which is either short, intermediate or long term. On this post, we will tackle short term loan, who can benefit from it, its pros and cons, and when to consider it.

A short term loan is a personal loan for a small amount of money that needs to be repaid in a short period of time, usually from three (3) to 12 months and can sometimes be extended up to 18 months. It’s a type of credit where one needs to repay the principal amount with an interest by a specific due date.

Who Can Benefit From Short Term Loan

Short term loan is proven to be beneficial to people who suddenly need cash because of an emergency or those dealing with sudden cash flow issue because it is usually easy to acquire and does not require collaterals. It is also ideal for individuals who have a bad credit rating and want to start anew by paying off bills, consolidating credit card debt, or by starting up a savings account.

For start-ups or small businesses that are not yet qualified to get a credit line from a bank and need money to start up a business, buy small equipment, or cover gaps on cash flows or in accounts receivables and payables, short term loan can be a stopgap in case the business suddenly requires funds.

Advantages of Short Term Loan

Easy to Acquire

Since the amount of money that can be borrowed on a short term loan is small, it can really be a life saver for individuals who have a bad credit or small businesses who need to build their credit scores. The requirements for obtaining this kind of loan are quite easy to meet because of the small amount.

Quicker Funding Time

The underwriting process of a lender is shorter for short term loans so the borrower can get the funds that they need more quickly which is great for emergencies.

Less Burden in Paying

The borrower gets less burden in repaying the principle amount with interest because of the shorter amount of time given to pay it back. It’s less risky and the ability to pay it back will not likely change over a short period of time.

Disadvantage of Short Term Loan

Smaller Loan Amount

One can only borrow a small amount for a short term loan. This is to ensure that the borrower will not be burdened in paying large monthly payments.

Higher Interest

The interest rate for short term loans is usually higher compared to the interest rate of long term loans or student loans so it is best to avoid using short term loans to buy cars, real estate, etc. that can lead to long term debt.

Factors to Consider Before Applying for Short Term Loan

Lending Company

One should always do research on potential lending companies to borrow money from. You need to know the types of clients that the company has, how they work, and the experience of previous clients. Read reviews about the company and ask for recommendations from people you trust.


Think about the reason why you need to borrow money and consider if it will be really worth borrowing for that purpose. Although it can be easy to obtain a short-term loan, it can easily damage your credit rating if you violate the terms of payment. Think carefully of the amount you will need to borrow and do not overestimate.

Repayment Terms

Lending companies have different repayment terms. Know about their repayment terms to see if you can manage them. Calculate how much you would need to pay every month and check if you are capable of paying such a month.

In case you can’t pay such an amount, you can always talk to the lender to extend the duration of your payment but of course it comes with a higher interest.

Interest Rates

The interest rate may also vary for each lending company. Look for one with the lowest rates.

Lenders can also give a higher interest rate if you have a low credit score.

Other Fees

Loans tend to have other fees. Always ask about the fees that you need to pay to avoid misunderstanding.


Getting a short term loan has advantage and disadvantages, it is better to asses your need and the factors to consider before getting one. If you think the benefits outweigh the disadvantages, by all means go for it!