How Can You Get Quick Short-Term Loans in India?

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Muskaan Kapoor

Jul 20, 2024 — 7 min read

Manish Aggarwal, Founder & CEO, E-Revbay Pvt Ltd - How Can You Get Quick Short-Term Loans in India?

This article has been contributed by Manish Aggarwal, Founder & CEO, E-Revbay Private Limited.

In the rapidly evolving financial landscape, short-term loans have become a vital resource for individuals and small businesses to address immediate financial needs.

Short-term loans are essential for both personal use and small businesses in India. With an emerging middle class of over 400 million, short-term loans will play a pivotal role in personal finance.

A 2021 survey indicates that 90% of adults in India now have access to a financial or savings account, highlighting the vast distribution potential of short-term loans in Tier 2, 3, and 4 towns. Easy access to short-term capital will remain crucial to our economy's growth.

Understanding Short-Term Loans?

Short-term loans are loans designed to provide quick funds to borrowers, typically with a repayment period of less than one year. These loans are characterized by the following:

Repayment Period: Less than eighteen months.
Loan Amount: Ranges from a few thousand to 10 lakh rupees.
Rate of Interest: Typically ranges from 11% to 24% per annum, based on the borrower's credit profile.

Why Short-Term Loans?

Short-term loans typically fulfil an immediate need for funds, which could arise from:

Unforeseen Expenses: Providing quick funds for unplanned and unavoidable expenses.
Meeting Emergency Expenses: Typically used for funding medical emergencies or emergencies arising from unexpected damages.
Bridging Temporary Cash Flow Gaps: For both individuals and small businesses to maintain liquidity.
Financing Short-Term Business Needs: This may take the form of inventory purchases or working capital requirements.

What Makes Short-Term Loans a Viable Option?

Short-term loans stand out as a practical solution for addressing immediate financial needs due to their:

Accessibility: These loans are typically disbursed quickly, often within 24-48 hours, providing immediate financial relief.
Economic Flexibility: Helps individuals manage unexpected expenses without significant financial strain.
Business Support: Enables small businesses to maintain operations during cash flow shortages or unexpected expenditures.
Credit Building: Timely repayments can help borrowers build or improve their credit scores.
Economic Impact: Contributes to overall economic stability by providing financial support during economic downturns or personal financial crises.
Inclusivity: Available through various channels, including traditional banks, NBFCs, and online platforms, making them accessible to many borrowers across urban and rural areas.

What Types of Short-Term Loans Are Available?

Understanding the different types of short-term loans can help borrowers make informed decisions about their financial requirements.

More popular short-term loan options include:

Payday Loans

Payday loans are designed for individuals who need quick cash and are waiting for their next paycheck. They are an advance on your salary, which you can use to cover immediate expenses. Your next payday must repay these loans.

Personal Loans

Personal loans are granted based on income, employment status, and credit history. They require minimal paperwork and are approved and disbursed quickly. Personal loans can be used for various purposes, such as urgent home repairs, medical emergencies, wedding expenses, travel, and shopping.

Loans Against Gold

Gold loans involve mortgaging your gold to secure the loan amount. To secure this loan, you are required to use your gold as collateral. These loans offer the flexibility to repay the principal amount at the end of the loan tenure.

Car Title Loans

If the car is owned outright by the borrower, they can use it as collateral to obtain a Car Title Loan. These loans typically let you borrow 25 to 50 percent of the car's market value and often come with high APRs and short repayment periods. Delayed payments can increase interest charges, making the loan more expensive.

Bank Overdrafts

Bank overdrafts provide temporary coverage when your account lacks sufficient funds. Although this option comes with high interest rates, it serves as a short-term solution to cover immediate expenses. Similarly, instalment loans involve regular, frequent payments over time until the principal and interest are fully repaid.

Lines of Credit

Unsecured and secured personal lines of credit allow access to funds on an as-needed basis. Borrowers can withdraw up to a preset credit limit, which replenishes as payments are made. Interest is only charged on the amount borrowed. Once the draw period ends, the remaining balance is converted to an installment loan with a set repayment period.

Online or Installment Loans

Short-term loans can also be obtained entirely online. The entire process is digital, from application to approval, and funds are often wired to the borrower's bank account within minutes of approval.

Invoice Financing

Popular among small businesses, true to its name, businesses can use their accounts receivables (unpaid invoices) as collateral to obtain a loan. The lender advances money based on the value of the outstanding invoices and charges interest for the duration that the invoices remain unpaid. Once an invoice is paid, the lender deducts the interest charges and returns the remaining balance to the borrower.

Short-term loans come in various forms, each designed to meet different financial needs. Understanding these options and choosing the best solution for your immediate monetary requirements can be challenging.

FinTech Coming to the Rescue

Given the number of options available today and the presence of numerous financial advisors, borrowers may feel unsure if they are getting the best deal; this is where fintech comes to the rescue; tools are now available to help even the most uninitiated understand their options. For those who are well-versed, these tools make the evaluation quick and error-free. Let us look at some of the tools in the market that help customers find the easiest ways to raise funds for short-term or long-term needs and are gaining traction:

Car Par Loan (CPL): Enables customers to apply for auto loans for new or used cars. CPL calculates the car's current value and determines the eligible loan amount in just 10 seconds.
My Loan Bhai (MLB): An algorithm-based virtual loan agent that automatically decodes a customer's credit profile to recommend best-match, high viability for approval personal loans, home loans, loan balance transfer, loan consolidation, and other funding solutions.

Once you have determined the best loan option for you, let's examine how to get it.

How Can One Obtain a Short-Term Loan?

The process of obtaining a short-term loan involves several steps:

Application

Fill out application forms.
Provide necessary documentation (ID, proof of income, etc.).
Apply.

Approval

Undergo a credit check and information verification.
Receive approval decision.

Disbursement

The loan amount is disbursed to the borrower's account.
Typically, it occurs within a few days of approval.

Required Documents

To apply for a short-term loan, borrowers need to provide various documents, including:

Personal Identification: Aadhar card, PAN card, Passport.
Proof of Income: Salary slips, 3-6 month Bank Statements, Income Tax Returns.
Address Proof: Utility bills, Rental agreements, Property tax receipts.
Additional Documents: As required by the lender's policies, such as employment verification or business registration documents.

How to Apply for a Short-Term Loan

Borrowers can apply for short-term loans through multiple channels:

Online or App-Based Application

Apply through lender websites or apps.
Fill out the form and upload it along with the required documents.
Apply online.

In-Person Application

Visit bank branches or lending institutions.
Fill out physical forms and provide the necessary documentation.
Apply in person.

Through Financial Advisors/Agents

Consult with financial advisors or brokers.
Receive assistance in finding suitable loan options.
The advisor applies on your behalf.

Eligibility Criteria

The eligibility criteria for short-term loans typically include:

Age: Minimum age of 21 years; maximum age varies between 60-65 years.
Income: Minimum monthly income ranges from ₹15,000 to ₹25,000, depending on the lender and loan amount.
Credit Score: A good credit score, typically 650 or above, affects eligibility and interest rates.
Employment Status: Stable employment with a minimum of 6 months to 1 year at the current job. Self-employed individuals must have a reliable source of income.0

Conclusion

Short-term loans are indispensable tools that provide quick financial relief to individuals and businesses alike. They support economic flexibility, help maintain business operations, and contribute to credit building and economic stability.

With the convenience of multiple application channels and tailored products like CPL and MLB, short-term loans are more decipherable and accessible than ever.

Whether for immediate personal needs or business support, short-term loans offer a valuable financial solution that can help bridge gaps and address urgent expenses.