5 Different Types of Short Term Loans in India: A 2026 Guide

Managing liquidity is a critical financial skill in the modern Indian economy. Whether you are tackling an unexpected medical bill or bridging a cash flow gap in your business, understanding the different types of short term loans available in India is essential for making a compliant and cost-effective choice. According to the Reserve Bank of India (RBI) Digital Lending Directions, short-term credit is increasingly digitized to ensure consumer protection and transparency in Annual Percentage Rates (APR). Typically, these financial products are characterized by their brief repayment window, often ranging from a few months to 36 months. Below, we analyze the most common short term loans types used by Indian borrowers today.

What are Short-Term Loans?

A short-term loan is a flexible financing facility intended to meet immediate capital requirements. In the current 2026 fiscal landscape, these loans are defined by their agility; the repayment tenure usually ranges from 6 to 36 months. Unlike long-term mortgages, these are often "unsecured," meaning they do not require collateral, though this varies by the specific short term loans types chosen.

5 Different Types of Short Term Loans

Lending institutions, including regulated NBFCs like Hero FinCorp, offer several different types of short term loans designed for specific financial scenarios:

1. Personal Loans (Short-Tenure)

Short-term personal loans are the most popular short term loans types for individuals. They are unsecured and can be used for weddings, travel, or medical emergencies.

• Tenure: 6 to 36 months.
• Key Regulation: Interest rates must follow the RBI Fair Practices Code, ensuring no hidden charges are levied outside the Key Fact Statement (KFS).

2. Bank Overdraft (OD)

An overdraft allows you to withdraw money from your account even if the balance is zero, up to a pre-approved limit.

• Expert Tip: You only pay interest on the amount utilized, not the entire limit, making it highly cost-effective for short-term liquidity crunches. Under the RBI (Pre-payment Charges on Loans) Directions (2025), no charges apply if you provide prior notice of non-renewal and close the account on the due date.

3. Trade Credit

Primarily for business owners, trade credit allows you to purchase goods now and pay the supplier later. While often interest-free for a set period (e.g., 30 days), failing to pay within the window attracts heavy penalties under Section 43B(h) of the Income Tax Act, which mandates payments to registered Micro and Small Enterprises (MSEs) within 15 days (no agreement) or 45 days (with agreement) to claim tax deductions.

4. Bridge Loans

As the name suggests, a bridge loan "bridges" the gap between the immediate need for funds and the arrival of a larger, long-term loan. These carry higher interest rates due to their transitional nature.

Also Read: What are the Advantages and Disadvantages of Long-Term Loans?

5. Demand Loans

These are secured against assets like Insurance Policies, Fixed Deposits (FD), or Gold. The lender can "demand" repayment at any time. These often offer lower interest rates because they are backed by collateral, reducing the risk for the regulated NBFC.

Features and Benefits of Short-Term Financing

• Quick Disbursal: Modern regulated NBFCs leverage Aadhaar-based E-KYC to provide "Instant Approval," often within minutes under the 2025 Digital Lending Framework.
• Minimal Paperwork: Documentation is now almost entirely paperless via the Account Aggregator (AA) network.
• Credit Score Impact: Timely repayment of different types of short term loans is reported weekly to credit bureaus (e.g., CIBIL) as of April 1, 2026, making it a fast way to build a healthy credit profile.

Eligibility Criteria for a Short-Term Loan

To qualify for different types of short term loans, applicants generally must meet the following 2026 criteria:

• Age: 21 to 58 years.
• Employment: Minimum 6 months for salaried; 2 years for self-employed.
• Income: A minimum monthly take-home of ₹15,000 to ₹25,000 (subject to location).
• Credit Score: A score of 725+ is typically preferred for the best APR.

Frequently Asked Questions

What is the maximum tenure for different types of short term loans?

In India, short-term loans usually cap at 36 months, though micro-credit products may require repayment within 12 months.

Does a short-term loan require collateral?

While Personal Loans are often unsecured, Demand Loans and Bridge Loans typically require security such as FDs or property documents.

Can I pay off my short-term loan early?

Yes. Under the latest 2026 RBI guidelines, floating-rate personal loans to individuals for non-business purposes cannot have foreclosure penalties, regardless of the source of funds used for repayment.

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