Situations may arise when we are challenged with the financial crisis that compels us to approach public or private financial institutions to provide monetary assistance. Few of us may require loans for longer periods while many guys may need short-term loans.
Commercial banks, other financial institutions and private money lenders usually facilitate the loans through the following usual methods:
- Credit Cards – Use of credit cards is involved under this mode of loan. The requisite goods or services are purchased by using the card. The relevant amount is debited to the account of the customer on his or her credit card. There is a limit of payment as regards the credit card account. The credit card holder is not expected to exceed the said limit otherwise it would incur extra charges. Financing through the credit card is the most feasible method of availing short-term loans that need to be repaid back within the specified time periods. Needless to say, certain charges are payable for such loans.
- Overdraft –As suggested by the name itself, overdraft refers to the amount that is withdrawn in excess of the available balance in the borrower’s account. Certain interest charges are payable for the amount that is withdrawn in excess from the account of the client. Banks and other financial institutions generally set certain limits with regard to such overdrafts. This is also a noble method of raising short-term loans.
- RAL, i.e. the Refund Anticipation Loan – Such a short-term loan involves borrowings against the tax returns. The clients can ask such loans from banks or other financial institutions that usually allow short-term borrowings against their expected tax refunds without the need to wait for the same. Needless to say, the borrowers have to promise and repay such loans on receiving their tax refunds from the concerned departments.
- Payday Loans – Usually allowed without asking for any guarantee, these loans are known as payday advances too. The borrower is required to repay such loans immediately on his or her next payday. The banking institutions or other lenders to verify the sources of the borrower’s income and employment. They check the bank statements and salary slips before allowing such loans to the borrowers.
- Bridge Loans – Usually involving higher interest rates and cross-collaterals; bridge loans are generally repayable upon making arrangements for larger or longer-term loans. Bridge loans are repaid back upon sanctioning of the longer-term loans to the borrowers. Less documentation is needed to avail bridge loans.
- Money Market – The trading of short-term loans between repurchase agreements, financial institutions, interbank lending and other instruments meant for shorter periods is involved in money market financing. People needing urgent credits and the ones with surplus funds for the same are involved in money market credit. Huge denominations between financial entities and other companies are generally transferred in the money market.
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Those in need of short-term loans may choose any of the above methods that suit them the most.
