Every time when you search for loans, you get confused between short-term and long-term financing. The reason could be that you cannot figure out which one to choose. It is not that only you are facing this problem.
Many borrowers go through this dilemma. This confusion can make you choose the wrong loan option. Your financial problems will amplify because of this mistake.
A simple step can save you from making this blunder. It is to determine the pointers that differentiate these two loans. The below representation shows the evergreen ways they are different from each other.
| Short-term loan | Long-term loan | |
| Repayment duration | Usually falls between 3 months to 24 months. | Usually 5 years or more. |
| Rate of interest | Practical interest rates. | Rates will be within your range |
| Purposes | Perfect to settle immediate cash requirements. | Costly or bigger purchases or purposes can be handled. |
| Security | No requirement for assets will be there. | These loans demand security that is usually your assets. |
| Process of approval | It does not take longer to make a decision and even approval. | Involvement of assets elongates the process. |
| Instalment facility | Higher monthly payments because of shorter duration. | Lower monthly payments because of longer duration. |
| Borrowing amount | Take out a smaller amount. | Draw out a larger amount of loans. |
Thus, you can pretty much see how the aspects that set them apart from each other. An elaborate study is necessary so that you can make sound financial decisions in the long run. No need to check anywhere else, as this blog is going to be informative for you.
Key variances between short-term and long-term loans
The two major types of loans accessible to you in the hour of crisis are. Compare them to understand how you can make the most out of a specific option in a given situation. As shown in the table, these loans are different in nature.
Thus, you should be implementing them in a different set of situations. First, you must understand the way they have been defined.
Short-term loans: The financing option that you can obtain for short-term necessity is these loans. The repayment tenure is not going to be lengthy. You can get them as speedy funding as they have a simple processing structure.
Long-term loans: This funding solution incorporates serving bigger requirements like covering wedding expenses, etc. You should be repaying loans over an extended duration. The processing of these loans will take time.
How are they different from each other?
You have gone through the major points that set them apart. Dig through finer details to have a better understanding.
· Impact of credit history
With traditional lenders, you cannot think of getting short-term financing regardless of credit history. However, you can apply for short-term loans for bad credit with a direct lender. This is because no credit checking is necessary.
This essentially means the revelation of credit scores. For this reason, you need not have to face any problem in getting a nod of approval from lenders. Long-term loans already provide collateral assurance.
Thus, the requirement for having a perfect credit score is not there. The lender can fetch the loan amount and interest by utilising the assets. This step will be taken by them if the borrower skips loan payments without any information.
Direct lenders only conduct soft verification that reveals the affordability of the borrowing. It should be such that it fulfils the repayment requirements of short-term funding.
· Repayment is easy breezy
The most bothering aspect of loans is the repayment pattern. With long-term loans, you can expect to get a longer span to complete payments. You can repay the loan in small amounts till the ultimate deadline is achieved.
Do you expect such feasibility with short-term funding? Your answer might be ‘no’ as you are supposed to pay back loans within a shorter duration. Despite this format, a direct lender tries to make repayment convenient for you.
Thus, the loan amount breaks down to become suitable small amounts. You can extend the duration up to 24 months. Within this span, you should be able to pay back the loan amount.
Now, the repayment structure and duration might vary from lender to lender. Weigh your options to find out which lender is offering the best arrangement. No matter which offer you choose, flexibility in repayment is 100% guaranteed.
· Application procedure excludes complexities
You might wonder whether getting loans will be effortless or not. The good news is that you can obtain short-term funding like instalment loans from a direct lender online. There is no need for you to go through an elaborate process.
These lenders facilitate virtual application mode. Thus, you do not have to face any hardship even to get short-term loans. To get access to the online form, you will just need a laptop or a smartphone.
You can completely skip the tedious process of documentation. You are good to go with your online application by mentioning fewer details. For this reason, you can have a speedy decision from the loan provider.
· Finalising purposes
For short-term loans, you should be very particular about the purpose. This should be followed even in the case of long-term loans. Do not mix and match the purposes or else the result will only disappoint you.
Short-term financing comes in handy when you have a small requirement in place. For example, you can reach out for these loans if you have a small bill to pay right now. Consider having these loans to pay a restaurant bill if you have accidentally left your wallet at home.
At the same time, you must be very specific about addressing major purposes with long-term loans. If you have to undergo a medical treatment that requires a sizeable amount of cash, you may prefer having long-term financing.
However, the only concern is that you should be able to pledge assets. This is because the amount of loan involved here is considerable. Thus, the lender will surely look for some solid assurance.
The bottom line
Your individual circumstances should decide which option will fit the bill for you. Never forget about assessing the urgency of requirements and your financial capability.
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.
