Life is unpredictable, things happen. Having money available for unexpected expenses isn’t always possible and sometimes your best option is to borrow money. In our blog ‘7 questions to ask yourself before lending money’ we proposed some questions you should consider before applying for a loan as there are many options available.
In this post, we explain the main differences and uses for short term and long term loans.
What’s The Difference Between a Short-Term and a Long-Term Loan?
Short term loans have a shorter repayment period, usually less than one year, while long term loans have repayment periods from 12 months to a few decades.
The fact that you can apply for and be approved for a short term loan without needing an asset to secure it is one of the main differentiators – they are referred to as unsecured loans. With long term loans you usually need an asset to secure the loan, like your house or vehicle.
Let’s take a closer look at each type of loan and what they are used for:
Short-Term Loans and What They are Used for.
As mentioned above, the usual repayment period is up to 12 months and can be as short as one month. When applying for a short term loan the lender will carry out a number of credit checks to establish your credit history. This determines the amount, repayment terms and interest rate offered to you – the better your credit score, the better offer you will get.
These types of loans are for people who are in need of cash quickly to pay for expenses over a short period of time. Whether your car has broken down, your computer needs repairing or you have an unexpected bill to pay, a short term loan may be the answer.
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The Benefits of Short-Term Loans.
- You get access to cash quickly and easily
- You won’t be tied into long repayment periods
- There are numerous options available including FASTACash.
Apply For a Long-Term Loan
Longer term loans are for larger amounts of money repayable over a longer period of time. Many financial institutions offer long term loans including banks and, as with short term loan applications, your credit history and affordability will be considered to determine whether you afford the repayments.
Long term loans can be used for larger unexpected expenses such as larger value medical bills like hospitalisation, as well as vehicle repayments and home loans.
The Benefits of Longer Loan Terms and Interest Rate
- You can borrow larger amounts of money
- Interest rates can be lower than short term loans
- You repay the money you borrowed over a longer period of time.
Your unique requirements will determine the type of loan that is right for you. Make sure you research the pros and cons of each and, importantly, select the type of loan that meets your needs and ensure you can afford the repayments.
Want to learn more about a personal loan? Watch this video to see what you can
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