Introduction

When looking for a personal loan, thousands of options are available in the market. You should keep in mind the amount you need, why you need it, and whether you will be able to pay it back on time. Another thing to consider is the repayment time over which you will pay down the debt. To fully understand all your options, it’s better to figure out how these loans are defined. A loan under 12 months is considered a short-term loan whereas loans longer than 12 months are considered to be long-term loans. Let’s discuss how short-term loans are different from long-term loans.

Short-term loans

You can borrow a short-term loan over a period of up to 12 months. The term can be shorter than 12 months, depending on the loan amount but a year is the maximum term period offered for a short-term loan. There are a lot of lenders who offer short-term loans, so it would do you good to research first before choosing a lender. A lot of online lenders offer fast and easy loans, check their rates & terms before accepting any.

During the loan application process for a short-term loan, the lender will do a credit check. If you have bad credit, you will find yourself with fewer options but you can still get accepted for a short-term personal loan with higher interest rates. Getting a free credit check before you apply is advisable to figure out where you stand.

Short-term loan usage

People who are looking for short-term loans usually need quick cash to cover some expenses. It could be that they have an unexpected medical emergency or home repairs that need to get fixed asap. You can use short-term loans to pay your utility bills too. Short-term loans usually have a higher interest rate than standard loans and charge additional fees. Apply for a short-term loan only if you are sure that you can pay back the entire amount on time.

Long-term loans

Long-term loans are what people consider regular personal loan which is offered by a lot of lenders, including banks. If you have a decent credit score and a stable monthly income, you are likely to get approved for a long-term personal loan. Long-term loans have a repayment term of more than 12 months and are paid over several years usually. 

Depending on your financial situation, you can get up to $50,000 with a long-term, unsecured personal loan. The interest rates are low compared to that of a short-term loan but the rates will vary among the lenders. So it’s best to look around to find the best terms.

Long-term loan usage

Long-term loans are used for bigger expenses such as buying a car or house or paying a big medical bill. Additionally, a long-term loan can be used for debt consolidation as well. If you have a lot of debts, consolidating them with a long-term loan might be a good idea.

Short-term loans vs long-term loans

Which one would be better for you, depends entirely on your circumstances. If you want quick cash to cover a small but urgent expense, then a short-term loan would b good for you. However, they will charge you higher interest rates and additional fees, meaning the total amount would be more than what you quoted. If you can afford it after the interest rates & fees, then you should definitely go for a short-term loan.

Long-term loans will offer you better rates & terms but these should be used for big expenses. They will also have a longer repayment period, so make sure you can afford all the monthly payments over the decided repayment period.

Bottom line

While a short-term loan can be paid off quicker than a long-term loan, not everyone can afford the high-interest rates & additional charges. Moreover, if you have a lot of expenses then a short-term loan won’t be able to meet your requirements. Hence, sit down and make a proper plan of how much exactly you need, and how much you can afford for the monthly repayments, and research all possible options to make a smart decision. we hope this helps you understand how short-term loans and long-term loans work.

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