What is a Short-Term Loan?


What is a Short-Term Loan?

A short-term loan is where the principal amount has to be paid within a short period of time and often less than a year.

short term loan


Short terms loans have been designed to cover gaps in cash flow and to also provide much needed funds in the case of an emergency. As the term of the loan is short, the interest rates on this type of loan are a lot higher than a long-term loan.

Short Term Loans for Individuals

Short-term loans for an individual are designed to provide money in between paychecks, to cover the expense of an emergency, a medical expense or even the cost to have your car fixed.

There are some banks and credit unions that offer short-term personal loans, but the more common source for this type of loan is a payday lender.

A payday lender will offer short-term cash advances for until your next paycheck.

Payday loans to carry high interest rates and are strictly governed by states in regards to their terms and conditions.

Credit cards are not referred to as short-term loans, but they operate in a similar way. With a credit card you will only pay the interest on your credit card balance if you do not pay the balance in full at the end of the month.

Short Term Business Loans

Banks may offer short-term business loans to provide finance for startup, to fund a new project, to pay for an emergency or to cover a gap in cash flow.

What to Know About Short Term Loans

Short-term loan terms and conditions will vary, but one constant is there high interest rates.

The higher interest rate is due to the principal not being held on to for a long period of time, so the lender has to charge a high interest rate in order to cover the risk of issuing the loan.

Short-term loans can be become dangerous if you are not able to pay it back on time and this can lead to more interest and fees.

You will need to do your research and know the costs involved before you take a short-term loan.

How to Quickly Improve your Credit Score


If you want to buy a car, get an apartment or just take out a personal loan then your credit score needs to be in good order. It generally takes 7 years before any negative information is removed from your credit score, but there are a few ways that you are quickly able to raise your credit score.

Pay off Your Credit Card Balance

One of the factors that influence your credit score is how you use your credit. A major factor is your credit utilization ratio, which compares your overall credit limit with the amount of credit that you are using. Credit card experts say that this should be below 30% or if you can 0 as this will help to raise your credit score.

credit score

Even if you are able to pay off a little of your credit card balance will help if you are not able to pay it all off.

A New Credit Card

Taking more credit may seem like the opposite of what you want to do, but adding to your overall credit limit will raise your credit utilization ratio.

A new credit card will then increase your total credit limit and will then lower your credit utilization ratio. The more credit that you are approved for then the more trustworthy you seem to lenders.

If you have a balance on your credit cards then you are able to transfer your balance to a new balance transfer credit card, which will then increase your credit limit and you can pay down your balance.

Fix Credit Report Errors

If you find that there are errors on your credit report then you should fix them so your credit score is raised. These errors can include credit lenders reporting false late payments, accounts that were reported as going to collections even though you have paid and even accounts that have been opened in your name but you didn’t know.

You will then need to get a copy of your credit report and go through it.