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Long Term Loans vs. Short Term Loans?

by Editorial Staff
January 24, 2020
in Business
Reading Time: 3 mins read
Long Term Loans vs. Short Term Loans

There are several ways to classify loans: by the type of guarantee used as collateral and depending on the duration of the loan.

If we reference the duration of the loan, we find two types: long-term loans and short-term loans. Let’s see how they are distinguished!

Table of Contents
Differences between long-term loans and short-term loans
Advantages and disadvantages of short-term loans
Advantages and disadvantages of long-term loans

Differences between long-term loans and short-term loans

The main distinguishing feature between a long-term loan and a short-term loan lies, as we have mentioned, in the duration of the loan. While the former has a maturity of more than one year, the short-term loan does not exceed 12 months.

Another difference is that short-term loans are often used to request lower amounts of money than are usually requested in long-term loans. This is because short-term loans usually focus on meeting specific and urgent needs, while long-term loans are used to finance large operations such as the acquisition of a property, a vehicle, the start-up of a business or any other operation whose development is carried out over a prolonged period of time.

When deciding on one or the other option, it is not only essential to be clear about these aspects but also what advantages and disadvantages each of them entails. Let’s see them!

Advantages and disadvantages of short-term loans 

The most notable advantage of short-term financing lies in the possibility of obtaining money immediately.

In a few minutes, we can request our short-term credit online and get an almost instantaneous response. It does not require excessive bureaucratic or paperwork and, as a general rule, it is not necessary to physically go to the office to formalize the procedure.

Another advantage of these loans, compared to long-term loans, is that they have lower interest rates and, therefore, the cost of financing is lower.

However, short-term loans, as we mentioned, offer a smaller amount of money than long-term loans. This is an essential aspect that the applicant must take into account when deciding on one or the other option.

Another aspect to keep in mind in short-term loans is that the repayment term of the borrowed amount is shorter and cannot be postponed. If this occurs, it would be necessary to pay high interest for late payment for having failed to comply with the stipulated return period.

The main distinguishing feature between a long-term instant cash loan from https://qvcredit.sg/fast-urgent-cash-loan/ and a short-term loan lies, as we have mentioned, in the duration of the loan. While the former has a maturity of more than one year, the short-term loan does not exceed 12 months.

Advantages and disadvantages of long-term loans

Adaptability and flexibility are two of the most notable advantages of long-term loans. Offering the option of repaying it over a prolonged period of time allows, in many cases, to choose the number of installments with which the loan will be amortized. That is why long-term loans are better suited to the solvency of each.

In addition, in many cases, long-term loan contracts can be modified or renegotiated and there are few occasions when periods of lack apply. The key to these loans is that, between the lender and the borrower, they establish a long-term relationship, with which it is necessary to establish optimal conditions for the borrower and, at the same time, the lender can receive the borrowed capital plus interest.

Despite these advantages, these types of financial products also have their “buts”. In addition, applying for long-term fast loans seems more complicated than in the case of short-term loans, since more detail is usually required in the documents and this may delay the management and grant of the same. Solvency is a determining factor when applying for any type of loan, more so if it fits in long-term loans, so if we do not have any monthly income, it is very possible that they will deny it to us since in that case asking for a loan could be a problem.

Everyday Loans is a great resource for acquiring both short-term and long-term loans that are relatively easier to obtain and often at better interest rates compared to banks and other financial institutions.

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