The Differences Between Long Term Loans And Short Term Loans
When in a financial emergency, many of you would approach the approved financial institutions like the banks, the credit unions, and other licensed lending companies to avail a suitable loan offer that could satisfy your crucial financial expenses, which are critical for your stress-free, happy living. The loans, personal or business-related, could be commonly classified into the following types, depending upon their working nature and the governing policies.
Conventional loans etc.
Among the listed popular loan types, our interest of discussion is based on the differences between the long-term and the short-term loan types, as they are widely used by the individuals to satisfy most of their practical financial requisites.
What are short-term loans
The short-term loans are the loans offered for the shorter duration, ranging from few days to a year or two, and that too for the smaller amount of money, with the basic focus on covering the immediate financial needs and expenditures. These short-term loans could be availed for both your personal use like the medical bill payment, car repair, home repair etc. and the business-related use like kick-starting a specific project, buying devices for your office etc.
The long-term loans
The long-term loans, as the name indicates could be availed for a longer duration that lasts for several years, depending upon the loan purpose and the guidelines imposed by the lending institution and can also be availed to borrow a larger sum of money, large enough to buy a home or start a business, unlike the short-term loan types. Again, these loans could be availed both to satisfy your personal purposes and the business-related specific purposes.
The following are the typical differences prevailing among the short-term and the long-term loan types, each having their own significant purposes.
The names of these loan types are more than enough to state about this basic difference prevailing among them. The long-term loan types are availed for a relatively longer duration, spread over a number of years that enable the borrower to carefully repay their loan amount, on time, without disturbing his/her other financial expenditures.
Whereas, the short-term loan types are availed only for a shorter duration, designed in such a way to cover your immediate financial expenditures, unlike the long-term ones, which not only satisfy your immediate requirement but also are focused on providing you with some futuristic financial relief.
The loan amount
Since the long-term loan types are designed to provide you with the long-term financial relief, you are allowed to borrow a huge amount of loan amount, as you could repay them effectively, without devastating your financial position, over a convenient period of time, as per the loan norms.
On the other hand, the short-term loans could only offer you the loan facility for a smaller amount of money than that of the long-term loan types, as their primary focus is to alleviate your immediate financial burden that might disrupt your normal routine and happy living.
The interest rate
The long-term loan types come with relatively the lesser value of interest rate, as your repayment amount is spread over a significant amount of period that gives enough scope to stretch or limit your interest rate. Also, these long-term loan types, owing to the higher volume of the offered loan money, generally expects a collateral, which also provides the lending company with some definite financial backing, in the event of you not repaying the borrowed amount on time.
Whereas, the short-term ones include a higher value of interest rate, sometimes as high as 750% APR in certain specific short-term loan types like the payday loans, as they neither demand you a collateral nor perform a credit check, which only means the lending company is at a higher risk by offering you the required loan money that could be compensated for by including a higher value of interest rate.
The loan process
The long-term loan type’s loan process go in synchronization with its name and if you are in a position to avail one, be prepared to witness some lengthier loan formalities that might require you to contribute some of your days in satisfying the required loan related procedures.
Whereas, not only the duration but also the formalities related to the short-term loan types are lesser, even accomplished efficiently in few hours when you are efficient enough to approach a quick and reliable, short-term loan lending institution.