Finding the right lender to support your financial needs is getting close to a victory. According to research, many people are facing financial constraints ending up with the wrong lender and getting stuck in debt. They are then not able to come out of it.
The lenders also mislead the borrowers and keep them waiting for a lifetime. Hence, going to the right lender for your financial needs is essential. Once you reach there, understand the features and products of the loan that you require.
Every lender has different guidelines and conditions for its products. For instance, if you wish to avail of debt consolidation loans, the terms offered by the lender may vary compared to the terms provided to another borrower.
Opportunities in loans
The borrower’s financial situation indicates what he can afford. As per that, the lender gives the loan. If you cannot afford it, you can talk to the lender and negotiate on your loan. Although there are endless opportunities in the loan market, it is essential to list all the available products according to your need.
Loans can be broadly classified under two categories, long-term and short-term. These are defined basis of the tenure of the loan. Under these two categories, there are several subcategories offered by the lender. Such as debt consolidation loans, payday loans, and loans for bad credit, especially for people who get rejected for other loans because of poor credit scores.
What is a short-term loan?
As the name suggests, short-term loans are relatively shorter repayment periods. Usually, borrowers who can repay their loan in a shorter period are best suited for this kind of funding.
But, with shorter repayment terms, the repayment amount goes up. There is no negotiation in that. Along with this, they may charge very high fees. One of the best examples of short-term loans is payday loans.
Before applying for any short-term loan, it is essential to do your research and check your financial balances. If you are being charged very high-interest rates, you must talk to the lender and reconsider your decision.
What are short-term loans used for?
Short-term loans are used for different scenarios. As mentioned, everybody has different needs when it comes to loans. For example, some people wish to avail of short-term loans for catering to an emergency medical bill. On the other hand, some people may avail of these loans to pay off their rent.
According to the individual needs of consumers, the lenders decide their guidelines. Some people have multiple pending debts and hence need debt consolidation loans. On the other hand, people with credit issues can avail of short-term loans on bad credit.
Hence there are umpteen options of loans available, suitable to your particular loan requirement.
Pros and cons of short-term loans
Short-term loans are useful for people, but they have advantages and disadvantages.
Advantages of short-term loans
These loans can be easily accessed and in a quick way. For this reason, they are being termed short-term loans. Whenever there is an urgent need for money, go to your lender for these loans.
Within short-term loans, there are plenty of options available. You can always find a suitable loan according to your needs.
The repayment tenure is comparatively shorter than any other form of a loan. You do not need to keep on paying instalments for a lifetime. Finish up your repayments and be dead free as soon as possible.
Disadvantages of short-term loans
As against the shorter repayment terms, they charge a very high fee. Many short-term loans usually carry higher interest rates, making them expensive for most borrowers.
Along with this, specific features, such as application fees and origination fees, are attached to these loans. Even if you pay your loan quickly, it is mandatory to be of these fees.
You cannot borrow a huge amount of money. There is a specific limit for your short-term funding. The lenders keep a strict limit as people may borrow massive amounts and not repay them. This can lead to debt problems for both the lender and the borrower.
What is a long-term loan?
Long-term loans, as the name suggests, are loans that have longer repayment durations. People may avail of these loans and repay them over a more extended period. Typically, the repayment tenure is measured in years. Many specialised lenders, banks, and credit unions offer such loans.
Pros and cons of long-term loans
There are many pros and cons to long-term loans.
Advantages of long-term loans
With long-term loans, you can easily borrow a huge limit. There is no limit to the amount that you can borrow. Depend upon your repayment as well as your current financial status.
As against short-term loans, long-term loans have a lower interest rate. Since the repayment tenure is longer, the lender charges a lower interest rate. Borrowers who wish to repay their loan over long periods with lower interest rates can opt for these loans.
These long-duration loans generally are guaranteed approval loans. Also, with these loans, there is no guarantor required.
There is plenty of lenders providing long-term loans. Several lenders in the market that have different terms and conditions are in favour of the borrower. You can go to any of these lenders to fulfil your loan needs.
Disadvantages of long-term loans
Along with the positive side, there are disadvantages to long-term loans.
Long repayment tenure works in our favour. It works against them as well. You are committed to making an extended repayment over a longer period. If you somehow miss a payment or cause a delay, you can get stuck into a dead cycle.
If you wish to increase your requirement, you may have to increase your amount. The interest rate left is according to the old repayment tenure. With new tenure, you need to pay a higher rate of interest.
There may be fees involved in these long-term loans. There can be an underlying fee or an origination fee in the case of long-term loans. It is crucial to clear out with the lender before going for such loans.
| Terms | Short-term | Long-Term |
| Repayment period | Less than or equal to 12 months | Maximum up to 7 years |
| Collateral | No Collateral | May require collateral |
| Interest rate | Higher | Lower |
| Amount | Small amounts | Huge amounts |
Conclusion
The decision between a long-term and short-term loan is dependent on the borrower. Whatever your need is, you can apply for that loan. Since all the differences and similarities are mentioned above, the borrower needs to check their current financial conditions and repayment capacity.
These two parameters are necessary while availing of any loan. If you have the affordability, you can apply for a loan and cater to your financial need.
Jessica Rodz is the Senior Content Writer at Cashfacts. She has a long career in the field of content writing and editing. Jessica has the expertise in the UK lending marketplace where she has worked with 7 different lending organisations and acquired many responsibilities from preparing loan deals and writing blogs for their websites.
At Cashfacts, Jessica is managing a team of experienced loan experts and doing a major contribution in guiding the loan seekers via well-researched blogs. She has done graduation in Business (Finance) and now currently doing research papers on the UK financial sector.
