Short-Term Personal Loan – Types & How It Works?

A short-term personal loan is one of the great ways to manage a necessary and sudden expense. This requires minimum documentation, and generally, there is zero need for security as most of these loans are not secured in nature. The application, as well as the grant procedure, is even easy and quick, owing to its online nature. So, if you hold a healthy credit profile with a stable income through self-employment or by being salaried, you can approach any financial institution may it be a bank like HDFC bank, Axis bank, IndusInd bank, ICICI bank, etc. or a digital lender like Paysense loan or PayTm personal loan. 

Simply based on your sound credit profile, you as an applicant can take up a loan that ranges anywhere between Rs 25,000 and Rs 5 lakh. Few fintech companies also offer an amount, which is as high as Rs 25 lakh, on their personal loan. Based on your credibility, the interest rate incurred on a loan can differ anywhere between 10 per cent and 24 per cent p.a. The loan tenure might range anywhere between 3 and 6 months and from 1 to 2 years. For specific special loans, the tenure can be as high as 5 to 6 years. 

Let’s check out some of the common short-term personal credit options categories that you must be aware of – 

∙       Home renovation loan

While opting for a top-up home loan is a prudent way if you already own a property through a home loan, a short-term personal credit loan might be an excellent idea if you just need a few renovations in your prevailing home. Also, it makes for a great investment as the market value of the renovated home is high. 

You may borrow anywhere between Rs 2 lakh and Rs 30 lakh. However, in case you avail of higher loan proceeds, it will not be allowed under the short-term credit scheme. For a higher loan proceed, NBFCs and banks may offer you a higher repayment tenure of up to 5-6 years for a personal loan

∙       Education loan

Of course, there are education loans with a high repayment tenure of a maximum of 15 years. However, for a particular education-linked expense, you can even choose a short-term personal loan. Such loan proceeds can be utilised for meeting any academic expenditure like tuition fees for the semester, hostel fees, buying program-linked equipment, etc. 

While small loan proceeds are available under this kind of category, loan proceeds as high as Rs 20 lakh may also be approved, which comes with a higher repayment loan tenure of up to 6 years. 

∙       Wedding loan

Weddings may really plunge your savings. Also, unplanned and unexpected expenditures may crop up. So, you may apply for a short-term personal loan for a procedure that you fall short off. You can apply for loan proceeds of Rs 20 – 25 lakh. Based on the amount that you borrow as a loan, your repayment tenure may range anywhere between 3 months and 6 years. 

∙       Travel loan

Gen Z and millennials often like to travel. Unlike the previous generation that believed in saving every penny to go on a travel trip, today’s youth prefer to take instant decisions when concerning travel trips. Travel loans may come across as a great way for you if you fall in this category, especially if you hold a stable income source along with a strong credit profile.  

∙       Medical emergency loan

While insurance generally is the ideal answer to mitigate your medical exigencies, a loan too can act as a lifesaver solution. Whether you do not hold medical insurance or you have exhausted the insured amount and require more financial help at short notice, a medical emergency loan may prove to be of great assistance. You can go for the small loan proceeds or even high proceeds of up to 20 – 25 lakhs as per your preference. Again, for the higher proceeds, loan repayment tenure can go as high as 5 – 6 years. 

∙       Loan for the debt consolidation activity

A short-term personal loan may be availed to repay your multiple debts. Having multiple debts reflected in your profile shows you as an individual with a poor credit score. So, many like to go for the debt consolidation option, i.e., personal loan, to use the proceeds from this loan to settle all the debt and pay off a single loan EMI. 

An important benefit of availing a personal loan for debt consolidation activity is that such loans allow you to repay the debt of big-ticket credit options like credit cards that come with a high finance charge of up to 52 per cent p.a. While personal loan maybe even come with a higher rate of interest than secured credit options, it would still charge a lower rate of interest than credit cards. For debt consolidation, you can avail of an amount of up to Rs 25 lakh. 

∙       Pension loan

Few financial institutions provide pension loans for retired individuals. Pensioners can, at times, land into a really tight spot when faced with extremely high expenses like those owing to medical needs. In a case like this, you can place an application for a personal loan. Loan proceeds can be up to eight times your monthly pension and the loan repayment tenure may be extended up to 5-6 years. 

∙       Small personal loans like festive loan

Specific banks/NBFCs may provide a small personal loan for various expenditures. One popular short-term personal loan is a festival loan. With festival loans, you can reduce the financial burden that you face during festivals. Festivals can, at times, result in additional unplanned expenditures. When you witness such a scenario, you can go for the festival loan. Generally, the proceeds are as high as Rs 50,000 Loan amount. 

∙       Consumer durable loan

Consumer durable loans such as televisions, air conditioners, washing machines, and refrigerators are usually costly. If you require to buy multiple such consumer durable products, it might be recommended to place an application for a consumer durable loan. Loan proceeds can go as high as Rs 25 lakh. NBFCs and banks might provide insurance coverage even to make it a customer-friendly deal.