A loan is categorized as a short-term loan if the term of the loan is less than or equal to one year. The form of loans can vary, such as daily, weekly, monthly, or others. The important thing is that the loan must be repaid in one year or less. If the loan time is more than that, then the loan can be categorized as a medium-term or long-term loan. Because the borrowing time is no more than one year, then a loan like this will provide a short burden as well. After one year, you will be released from the loan and can breathe more freely. However, it must still be considered profit and loss.
It must be remembered that a loan is a debt
When in debt, there is an obligation to pay according to the agreed time between the borrower and lender. If you cannot pay on time, there will usually be a consequence of the delay. Lenders usually set certain sanctions for late payment such as fines or auction guarantees if the loan uses collateral. For this reason, careful calculations need to be done before borrowing money. You must know how much you can afford with a clear income prediction so that you will be able to pay according to the due date that is not long.
If paid in installments per specified period, the shorter the time period, the faster the burden will be completed. However, for large amounts of loans, a short time period means a greater amount of installments so the burden is too heavy and may become unaffordable. Therefore, the short-term loan ceiling is usually smaller than the long-term loan.
Typically, loans with a maturity of less than 1 year are easier to obtain than loans with a longer rank because the risk is smaller for the lender. New borrowers who do not have prior loan records are more likely to be able to borrow only for a short time. In addition, the type of collateral also usually affects the period of the loan given. For guarantees that have a reduction in value from time to time such as motor vehicles, the loan period is short. Long-term loans can usually only be obtained if the collateral has a stable value or tends to increase from time to time such as land and buildings.
Because the loan period is short
this loan is suitable for short-term capital projects with clear income. The reason is simple, namely to facilitate payments and ensure the ability to repay loans on time. For projects like this, there are several banks or other lenders who want to make concessions by not requiring you to pay in installments but allowing you to pay in full when due. That way, you can focus more on working on projects without thinking about installments. When your project is complete and the results are obtained, you can return the loan and be free from the burden.
Because a project does not always go according to schedule, it is better if you make a little spare time as a leeway to pay off loans. For example, you have a project that will be completed in 5 months. For the project capital, you can borrow with a period of 6 months so that when due, you already have funds to pay it off. However, don’t make it too loose because it can make you too relaxed and negligent. If the time period is too long, you might have used the money so that when it is due, your money is used up.
Short-term loans can also usually be used for personal needs such as for the cost of home repairs, wedding costs, and even vacation costs. However, loans for these needs are usually more difficult to obtain and you need strong proof of your ability to pay. You also cannot take big risks. Make sure that the amount of the installments that you have to pay each month or certain period matches your ability to pay. Don’t forget that you also have many other needs so your income must be divided to meet all those needs. So, choose the fastest installment that you can afford to pay so that your expenses are finished quickly but not burdensome for you.