Types of loans you can apply for to fulfill short term financial needs

Posted by komal bhaskar on January 7th, 2019

Types of loans you can apply for to fulfill short term financial needs
We all have to go through situations in life when we have certain short term financial needs and need the money urgently to fulfill them. For instance, a person might need money urgently in the short term to get his or her child married or to invest in a lucrative investment opportunity for a trip abroad etc. For these short term money requirements, there are lot of loan options available in the market. However, the problem with short term loan options is that the rate of interest charged by the financial institution is quite high. Therefore it is advised to assess the repaying capability before applying for a short term loan. The short term loan options available in the market are:

• Personal loan: Personal loans are the most common form of short term loans available in the market. People usually take personal loans to repay credit card bills, medical bills or when going for a trip abroad. Most personal loan options that are available in the market are unsecured and have to be paid back in installments that are fixed. The term period for a personal loan usually lasts from 2 to 5 years. The interest rates for these type of personal loans can rise upto 30 to 35%. Usually, the minimum amount that can be borrowed in a personal loan is Rs.30,000. The bank which lends you the amount for the personal loan will make sure that it does not exceed 40% of the total income earned by you. The banks do this to make sure that the borrower is able to payback the loan amount and not default on the fixed installment that is to be paid.
• Bridge loan: Bridge loans are also known as ‘Swing Loans’ and are typically applied for when the borrower has immediate financial requirement and has applied for a long term loan but needs money to cover the expenses in the meantime. Bridge loans are generally used by real estate buyers to fulfill immediate cash requirement. The real estate buyers apply for bridge loans in order to arrange the down payment of the home for which will be bought via the home loan. The rate of interest offered by banks on bridge loans ranges from 13% to 18% which is higher than what you would be charged on a normal home loan with a longer tenure. These loans are also used in the real estate business for closing deals quickly. Currently, in India no less than 31 lenders offer bridge loan as a short term option for the borrowers. Some of the prominent financial institutions that offer bridge loans include HDFC and SBI.
  
• Demand loan: Another short term loan option available in the market is the ‘Demand Loan’. Demand loans are secure and the banks demand securities in the form of bonds and insurance policies. The maximum loan amount that the borrower can borrow in a demand loan is 70-90% of the security amount. In a demand loan, the borrower can only borrow a part of the total amount that  has been sanctioned. The interest rate that has to be paid by the borrower is decided based on the loan amount that is borrowed and not sanctioned. A drawback related to demand loans is that if the lender asks for the borrowed money at any time, it has to be returned to him or her without any notice by the borrower with the full interest amount. Usually this situation does not occur as banks do not ask for the borrowed money before the loan tenure ends unless the security amount is less than the amount that the borrower has to pay or the security is about to mature in the near future and the loan amount can not yet be covered from it.