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What is a Short Term Loan?

Wed, 11 Nov 09

Definition

In lending and financial markets, a short term loan is generally a loan with a term of less than 365 days.

Characteristics

Generally speaking, short term loans share the following characteristics:

1. Some form of real property is utilised by the lender as security
2. A caveat and/or mortgage is utilised by the lender to protect their interest in the security property
3. The interest rate charged is significantly higher than a 'normal' mortgage
4. Application process takes days not weeks
5. Generally no financials or credit checks are required

Advantages

Compared to a 'normal' loan, a short term loan may provide the borrower with the following advantages:

• Speed: Generally, once a short term lender has all the information they need, the approval and settlement occurs within 72 hours. This will never happen with a 'normal' lender where you will often wait weeks until settlement.

• Flexibility: Generally a short term lender is not as constrained with credit policy rules and regulations as a 'normal' lender. This often means that a loan a 'normal' lender will decline may be approved by the more flexible short term lender.

Disadvantages

A 'normal' loan in contrast to a short term loan, may provide the borrower with the following disadvantages:

• Cost: The annual interest rates applied to short term loans are significantly higher.

• However, paying a high interest rate on a small loan for a short period, may well be less expensive than refinancing an increasing the size of an existing loan and paying a lower interest rate on a larger loan for a longer period.

Labels

Short term loans are also often called or labelled:

1. short term finance
2. short term funding
3. caveat loan
4. caveat finance
5. bridging loan
6. bridging finance
7. private finance
8. private mortgage
9. second mortgage loan
10. second mortgage finance

For more information, or to apply for a short term loan, simply call 1300 844 851.