Interest Rates of Short-Term Loans: Updated for 2021- Credit Mantri.

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What are short-term loans?

Short-term loans are generally extended by financial institutions for 1-2 years. These are mostly unsecured, which means you don’t have to pledge collateral as security to avail them. Though funds can be extended quickly, the reason why they are labelled “short-term” is the associated repayment tenor (to be paid off in full within 6-18 months) rather than the speed of funding. Short-term loans are beneficial for individuals who are unable to get loans for a longer tenure from a bank or a lender due to various reasons.

What are the different types of short-term loans?

Short-term loans are different from the other conventional ones in the market because of the ease of availing them. However, there are many short-term loans in India offering you the funds you need to meet any short-term financial need. Here, we try to cover the ins and outs of the 5 most popular sources of short-term loans, to help you make an informed decision when it comes to availing short-term finance.

  • Trade Credit

Considered to be one of the most affordable sources of obtaining interest-free funds, you can avail of a trade credit where the lender would give you the time to pay for a purchase without incurring any additional cost. Trade credit is usually extended for 30 days. However, you can consider asking for a longer tenor that would easily fit into your plan. A flexible repayment tenor will allow you to leverage the additional time and funds to finance other initiatives.

  • Bridge Loans

A bridge loan helps to tide over till the time you get another long-term and larger value loan approved. In India, such a loan assumes importance in the case of transactions relating to the property. For example, if you want to buy a new house but don’t have sufficient funds because the old one hasn’t been sold off yet. 

You might want to wait for the funds to come through once you get a potential buyer for the old property, but this will have its downsides, including the price of the new property shooting up. It is during this waiting time that you can avail of a bridge loan that offers two-pronged benefits- it helps you with the funds to buy the property while giving you ample time to wait and get a good deal on the old one.

  • Demand Loans

This loan comes in handy while meeting any urgent financial obligation. You can pledge your insurance policies and other savings instruments such as NSCs in lieu of the loan. A certain percentage of the maturity value on such savings instruments will determine the extent to which you will be eligible to borrow as the loan amount.

  • Bank Overdraft

Bank overdrafts can be sought on your current account. With an overdraft facility at your disposal, you will be able to withdraw money despite your account not having sufficient cash to cover such withdrawals. Essentially, it helps you to borrow money within a sanctioned overdraft limit. Much like any other loan, an interest rate (often lower than that on credit cards) is levied on the outstanding overdraft balance. Having said that, be wary of certain additional costs that might be attached with such a facility, including fees per withdrawal.


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