When you need quick access to money for an emergency, a business opportunity, or unexpected expenses, short term loans can be the best solution. These types of loans are designed to be repaid over a short period, typically ranging from a few weeks to 24 months.
In this detailed guide, we will explain everything about short term loans—what they are, types, benefits, interest rates, and how to choose the right one for your needs. Whether you’re a salaried employee, a student, or a small business owner, this article will give you all the information you need.
What Are Short Term Loans?
Short term loans are financial tools provided by banks, NBFCs (Non-Banking Financial Companies), or online lenders to meet urgent or temporary financial needs. These loans come with shorter repayment periods and are generally approved faster than traditional long-term loans.
They are best suited for situations like:
- Medical emergencies
- Paying off high-interest debt
- Business working capital
- Travel or education expenses
- Utility bills or home repairs
Unlike long-term loans, these are not meant for large purchases like a house or luxury car.
Key Features of Short Term Loans
| Feature | Details |
|---|---|
| Loan Amount | ₹1,000 to ₹5,00,000 or more |
| Repayment Tenure | A few weeks to 24 months |
| Processing Time | Few hours to 2 days |
| Interest Rates | Varies from 1% per month to 30% per annum |
| Security Required | Usually unsecured (no collateral) |
| Approval Basis | Credit score, income, and lender policies |
Types of Short Term Loans
Here are the most common types of short term loans available in the market:
1. Personal Loans
- Purpose: Used for any personal needs
- Tenure: 3 to 24 months
- Interest Rate: 12% – 24% annually
- Security: Unsecured
- Best For: Salaried individuals
2. Payday Loans
- Purpose: To meet expenses until next salary
- Tenure: 7 – 30 days
- Interest Rate: 1% – 1.5% per day
- Security: Unsecured
- Best For: Salaried individuals with urgent needs
3. Credit Card Loans
- Purpose: Short borrowing through card balance or EMI
- Tenure: 3 – 24 months
- Interest Rate: 24% – 42% per annum
- Security: Unsecured
- Best For: People with good credit limit
4. Overdraft (OD) Facility
- Purpose: Withdraw more than balance from bank account
- Tenure: Revolving credit
- Interest Rate: 10% – 18% per annum
- Security: Secured or unsecured (based on account type)
- Best For: Business owners or freelancers
5. Invoice Financing
- Purpose: Business cash flow management
- Tenure: Up to 180 days
- Interest Rate: 1% – 3% per month
- Security: Invoice as collateral
- Best For: SMEs and startups
6. Line of Credit
- Purpose: Borrow as needed up to a credit limit
- Tenure: Flexible (subject to lender policies)
- Interest Rate: 10% – 24% per annum
- Security: Mostly unsecured
- Best For: Freelancers, businesses, and startups
7. Gold Loans
- Purpose: Loan against gold assets
- Tenure: 3 – 12 months
- Interest Rate: 7% – 15% per annum
- Security: Gold as collateral
- Best For: Individuals with gold jewelry/assets
Comparison of Short Term Loans Based on Interest Rates
To help you choose wisely, here’s a comparison table of various short term loans and their average interest rates:
| Loan Type | Avg. Interest Rate (Annual) | Loan Amount | Typical Tenure | Security Needed |
|---|---|---|---|---|
| Personal Loan | 12% – 24% | ₹10,000 – ₹5 Lakhs | 3 – 24 months | No |
| Payday Loan | 36% – 180% (effective) | ₹1,000 – ₹1 Lakh | 7 – 30 days | No |
| Credit Card Loan | 24% – 42% | Up to Credit Limit | 3 – 24 months | No |
| Overdraft (OD) | 10% – 18% | Varies by bank | Revolving | Yes/No |
| Invoice Finance | 12% – 36% | Up to invoice value | Up to 180 days | Yes |
| Line of Credit | 10% – 24% | ₹25,000 – ₹10 Lakhs | Flexible | No |
| Gold Loan | 7% – 15% | ₹5,000 – ₹25 Lakhs | 3 – 12 months | Yes (Gold) |
EMI Calculator
Eligibility Criteria
To apply for most short term loans, you need to meet the following basic eligibility:
- Age: 21 to 60 years
- Income: Minimum ₹15,000 per month
- Credit Score: 650 or above (preferably)
- Employment: Salaried, self-employed, or business owner
- Documentation: Aadhar, PAN, income proof, bank statements
Some lenders may relax eligibility if the loan is secured (e.g., gold loan).
Documents Required
Though requirements vary, here’s a general list of documents for short term loans:
- Identity Proof: Aadhar, PAN, Voter ID
- Address Proof: Utility bill, passport, rental agreement
- Income Proof: Salary slips, ITR, bank statement
- Photograph
- Security Documents (if applicable – e.g., gold or invoices)
Advantages of Short Term Loans
| Advantage | Explanation |
|---|---|
| Fast Approval | Many lenders approve loans within 24 hours |
| Minimal Documentation | Especially for salaried applicants |
| Flexible Usage | Funds can be used for any legal personal or business need |
| Builds Credit History | Timely repayment improves credit score |
| No Collateral Required | Many loans are unsecured and risk-free for asset holders |
Risks and Drawbacks
Even though short term loans are helpful, there are risks:
- High Interest: Some loans (like payday or credit card loans) have very high rates
- Late Payment Penalties: Delays can lead to fines and credit score drops
- Debt Cycle: Overborrowing can lead to a cycle of debt if not planned well
- Frequent EMI Outflows: Short tenure means higher EMI amount per month
How to Choose the Right Short Term Loan
Here are key tips to pick the right loan:
- Compare Interest Rates: Even a small rate difference matters over months
- Check Repayment Tenure: Choose EMI you can afford monthly
- Understand Fees: Processing fee, foreclosure charge, late payment penalty
- Verify Lender: Always choose registered NBFCs or banks
- Read Terms Carefully: Especially when borrowing online or from fintech platforms
- Calculate EMI: Use an online EMI calculator to plan repayment
Top Fintech & NBFC Lenders in India (As of 2025)
Here’s a quick snapshot of popular short term loan providers and their basic offerings:
| Lender | Loan Type | Rate of Interest | Processing Time | Max Tenure |
|---|---|---|---|---|
| EarlySalary | Personal/Payday | 18% – 30% | < 24 hours | 12 months |
| CASHe | Personal Loan | 24% – 36% | 1 – 2 days | 18 months |
| KreditBee | Line of Credit | 20% – 32% | Instant to 2 days | 24 months |
| Bajaj Finserv | Personal Loan | 12% – 24% | 24 – 48 hours | 24 months |
| Muthoot Finance | Gold Loan | 7% – 15% | Same day | 12 months |
| SBI | Personal Loan | 9.6% – 13.8% | 3 – 5 days | 24 months |
When Should You Consider a Short Term Loans?
Use short term loans only when:
- You have urgent, short-lived expenses
- You can repay within 1–2 years
- You don’t want to lock-in long-term liabilities
- You want to cover gaps in business cash flow
- You need to improve credit score with small loan repayments
Avoid these loans if you already have heavy EMIs or unstable income.
Repayment Tips
- Auto-debit setup helps avoid missed EMIs
- Part-payment helps reduce interest burden
- Avoid defaults to keep your credit healthy
- Pre-close the loan if you get surplus funds
FAQs
A. Short‑term loans are financial products designed to meet immediate cash needs and are repaid over a brief period—typically a few months to a year.They offer quick access to funds with minimal documentation but often come with higher interest rates.
A. Common types include:
Personal loans (unsecured, fast disbursal)
Payday loans (due by next salary; very short terms)
Credit‑card loans (pre-approved, rotating credit)
Gold loans (secured by gold with lower rates)
Overdrafts (flexible credit tied to accounts)
A. Rates vary widely:
Personal loans: 10–26% p.a.
Payday loans: 1–6% per month (annualized, very high)
Gold loans: usually lower, but not covered here
Overdrafts: charged on utilization only
A. Yes—because of the higher risk and urgency, these loans carry significantly higher interest rates than long-term ones like home or auto loans.
A. These loans typically offer quick disbursal—often within 24–48 hours, especially from digital lenders and NBFCs.
A. Usually only basic KYC, proof of identity and income. Some secured options (e.g., gold/overdraft) may need collateral.
A. Yes—especially for personal loans. A good CIBIL score (≥750) can get you lower interest rates. Lower scores may still get loans, but at higher rates.
A. Prepayment terms vary. Many lenders allow early repayment, but NBFCs and personal loan products may include prepayment or processing charges.
A. Most short-term loans range from a few months up to one year, depending on the product—personal, payday, or overdraft.
A. It depends—overdrafts charge interest only on the amount used and offer repayment flexibility, while personal loans provide fixed EMIs and predictable repayment schedules.
Conclusion
Short term loans are an excellent financial solution when used smartly and responsibly. Whether it’s a sudden expense or a business requirement, these loans offer speed, flexibility, and a wide range of options.
However, due to the higher costs of some short term loan types, it’s essential to choose the right kind of loan based on your financial profile and repayment capacity. Always read the terms, calculate EMIs, and borrow only what you truly need.