Why does a short-term loan appear to be cheap and a faster option than long-term loans?

If you are short of money and need it quickly for a financial emergency, then a short-term loan will be the right option. These are loans that you have to pay back over a short period of time and can get quickly when you need them urgently.

Here are some details you need to know before you take out these short term loans.

An overview of the different aspects of short-term loans

An overview of the different aspects of short-term loans

What are the specific reasons for getting a short-term loan?

  • To deal with emergencies.
  • To meet the money needs until the next day of money availability.
  • If you are not able to obtain other types of loans.

Why are short-term loans too common?

There are several reasons behind this obviousness, here is the detail:

1 ) Low cost option

Compared to longer-term loans, the cost of capital for short-term loans is generally much lower.

Despite their higher interest rates, these loans accumulate interest for a shorter period. So, the total interest you have to pay is considerably lower.

As an example, for a 1.15% loan and if the loan amount is $ 1,000, you will have to repay $ 1,150 for the initial loan ($ 1,000). Thus, despite a higher interest rate, this type of loan will generally cost less than a longer-term loan.

2) Quick financing

The time required to obtain this loan is much shorter than in the case of a long-term loan.

The reason is that when the repayment term of a loan is longer, it makes the loan riskier for the lender and, as such, the loan underwriting process becomes more strict and complex.

On the other hand, because lenders consider short-term loans to be less risky because of their short payback period, the loan application process is therefore easier and you get quick financing.


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