To put it very simply, short term loans are small loans (less than $2,000) offered for a period of less than 30 days (can vary in some cases).
Every Australian citizen who is 18 years of age or older, and has a regular source of income (job, benefits, passive income etc.) is eligible to apply for and receive short term loans.
These are generally sufficient conditions. Non-Australian citizens can also get short term loans if lenders find their applications satisfactory.
There are many advantages of getting a short term loans, especially if you are employed. These include:
The differences between short term loans and bank loans couldn’t be starker.
|Short Term Loans||Bank Loans|
|Loan Amount||Up to $2,000||Indefinite|
|Loan Term||Up to 30 days (can vary)||Indefinite|
|Interest Rates||Relatively higher||Relatively higher|
|Eligibility Criteria||Very broad, easy to be eligible||Stringent, difficult to be eligible|
|Availability||Instant (same day)||Takes weeks for the funds to be available|
There are many situations that short term loans are‘tailor made’ for. Some of these have been listed below:
When you are running low on credit with a poor credit score to boot, something as mundane as paying bills can become a difficult task to deal with. Paying bills on time is important as defaulting on bills may mean that you stop receiving those particular services.
In addition, unpaid bills attract steep fines which can further worsen the whole situation. If you use credit cards for paying bills, unpaid bills can quickly consume your credit limit, in turn causing further damage to your credit score.
That’s why, getting a small, short term loan to pay bills makes sense. You can get your bills paid off for the month and then repay the loan when your next payday finally arrives!
Holidays are meant to be the cheeriest part of the year and without any doubt, bad credit or lack of availability of cash shouldn’t really have to make you lose out on them.
If you are facing stiff shortage of cash during holidays, you can simply turn to short term loans to bridge the deficit, only to be paid back in the New Year!
There are some months when due to unforeseen reasons, your paycheque invariably gets delayed. A delayed paycheque, in turn, means that you are unable to pay for all the bills and groceries for the next months. To get out of such tricky situations and to manage the flow of cash better, short term loans can be quite useful.
Most employed people in Australia get paid on a fortnightly or monthly basis. If you are among such people, there is a good chance that you regularly run short of cash as you approach the next payday. To get through the ‘lean period’ that your payday follows, you can choose to get a short term loan.
Unexpected medical expenses can easily break down your whole monthly budget. If you come across such expenses, you can manage them with a short term loan so that the rest of your budget for the month doesn’t get disturbed.
There are various types of short terms loans. These are much similar, except for some minor differences.
Payday loans are the most popular kind of short term loans. Offered against the next paycheque, payday loans are very easy to apply for and receive. They are typically small loans spread over a maximum of 30 days. Applicants with bad credit score and Centrelink benefits can also qualify for payday loans. Payday loans do not require any security or collateral before approval.
Short term secured loans are generally required when the requirement of cash, though on a short term, is significantly high. These loans are offered by both banks and private lenders. They are secured with a collateral like housing mortgage or a moveable asset like a car.
There are many options available to ‘consolidate’ various loans in a single loan account that offers relatively lower interest rates over a shorter term.
Short term loan durations vary, depending upon the type of the loan.
If there is any downside to a short term loan, irrespective of its type, it has to be the interest rate applicable.
Interest rates for short term loans are relatively higher than corresponding loans made available by banks or credit unions.
One way of looking at these high interest rates is the ‘cost of convenience’ associated with most short term loans, especially no-securities and bad credit loans such as payday loans.
Currently, a typical payday lender can charge a maximum of 4% term interest on any payday loan, in addition to a fixed establishment fee of 20% of the loan amount.
We overviewed various scenarios that short term loans can be useful in for personal finances. Similarly, for small businesses, short term loans can be a very helpful resource to make sure that the business is always cash positive.
Some common difficulties faced by small businesses include delayed payments from customers or clients, non-payment of services, delays in funds getting cleared, lock-in period of funds etc.
In such events, lack of availability of cash can adversely affect the future of the business. To avoid this, small businesses can use short term loans to stay afloat until the invoices get paid and funds get cleared.
Short term loans are best treated as temporary solutions as well as reminders to make enough provisions to avoid having to confront similar situations again.