Banks often impose penalties if you fail to pay your EMI on time which could worsen your financial burden.
These loans are primarily unsecured which means that you don’t need to pledge any collateral against them.
Dealing with an urgent need for money can be quite challenging for many. This is when most of us opt for loans to tide over the financial crisis. A short-term loan is among the popular options to get emergency funds. These loans are primarily unsecured which means that you don’t need to pledge any collateral against them. Such loans are called short-term loans because mostly, they need to be paid off within six to eighteen months which is a shorter repayment tenure as compared to other loans.
Besides the cash crunch, short-term loans are also obtained for meeting business capital needs. While getting such loans may be easy, it is important to know the risks associated with them. Below are certain points you must consider before opting for a short-term loan.
Higher interest rates
The ease of getting a short-term loan comes with a higher interest rate than other loans. Because they are unsecured and have short repayment tenure, lenders consider them high-risk and often charge high-interest rates. Hence, it is crucial to first assess your needs and then apply for a short-term loan.
Penalties and charges
Banks often impose penalties if you fail to pay your EMI on time which could worsen your financial burden. Some charges like processing fees are also involved in obtaining a short-term loan. If you wish to repay your loan before the due date, then this could also attract some penalties from the lender. It is advised to go through the terms and conditions before finalising a short-term loan.
High EMIs
Short-term loans need to be paid off within months and thus, the EMI amount is higher, especially when you have borrowed a large amount. Making a big payment every month can be difficult for some. Also, failure to pay an EMI within the due date can affect your credit score and in turn, the chances of getting loans in future.
Read all the Latest Business News here