New Delhi: If you want quick cash for a dream vacation, to upgrade your old laptop or pay off your long-standing credit card bill, you might want to consider a short-term loan. These are personal loans whose duration is generally less than one year. Interest rates, however, are higher because the duration of payments is short. Despite this, this financial instrument is very popular due to its ease of approval and the minimal paperwork involved compared to traditional bank loans.
An overview of the types of short-term loans you can avail of in India:
Personal loans: The good old personal loan is perhaps the most popular of the short-term loans offered by banks. The minimum amount that most lenders offer as a personal loan is ₹ 30,000. Interest rates are higher than secured bank loans. Equivalent monthly installments, or EMIs, are adjusted based on the borrower’s salary, so they don’t miss payments.
Payday Loans: Payday loans have become popular in India lately. The amount offered here is usually less than that of a personal loan, but the money is instantly available to the borrower. Just upload pay slip, permanent account number (PAN), bank account number and some other details to avail the loan. The loan is credited to the borrower’s bank accounts within a few hours or a day at most. The hassle-free application procedure and instant availability have made payday loans popular among young people.
Bridging loans: Bridge loans, or swing loans, are short-term loans aimed at meeting your immediate cash flow needs. Also known as “gap financing”, bridging loans are requested when money is needed but not available. If you are waiting for a long-term home loan to buy a property and need fast financing for the down payment of that property, Loans are an ideal option, but the processing fees and interest rate are higher than traditional loans.
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Loan against credit card: If you use a credit card, you can qualify for a pre-approved short-term loan. Depending on your credit card history and credit limit, several banks offer this type of loan. Processing fees start from ₹ 500 and the interest rate is between 12% and 25%, depending on the bank. The repayment term is generally flexible, ranging from three months to 24 months.
Demand loans: Demand loans are useful in times of financial emergency. Banks and non-bank financial corporations (NBFCs) offer such loans against insurance policies and small savings instruments, such as National Savings Certificates (NSCs). The loan amount depends on the maturity value of your savings instruments. Banks generally offer loans of up to 70% to 90% of the value of your savings.
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Loans on PPF account: Short-term loans are also available on Public Provident Fund (PPF) accounts, but only from the third year of account opening. A borrower must submit his PPF account passbook and Form D to avail the loan. The loan amount can represent up to 25% of the balance available at the time of the loan application. The loan is available until the sixth financial year from the opening of the account and the repayment period will be three years maximum.