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Short Term Loan vs. Long Term Loan – Which One to Choose?

Short-Term vs. Long-Term Loan

A loan is a principle amount that is received by the borrower from the lender as a debt for a certain period of time for the repayment of the principle with an assigned interest. Loans can be provided by financial institutions, banks, or peer-to-peer etc. Loans differ by their features such as the need of the loan, repayment period, the place where it is borrowed from and the time taken for it to get approved. Depending upon the need of the borrower a loan is chosen. The different loans that are offered in the present market are secured loans, unsecured loans, demand loans and subsidised loans. In the present system loans are viewed as two types that are short term loans and long term loans. This differentiation is mainly recognised as the involved repayment period of the loan as the main aspect.

Typical Long-Term Loans:

  • Student Loans for education expenses.
  • Mortgage Loan for building construction or buying a house.
  • Vehicle loans or loans for other household appliances.

The long-term loans are usually bank loans that have a loan repayment period varying from few months to years. The most common among the long term loans are mortgage loans, education loans or vehicle loans. These loans are not completely online as they require the physical presence of the borrower. The reason for the loan has to be specified and also the amount has to be used for the same purpose. Collateral is required on this type of loan acting as a surety. It is mostly preferred when you need to purchase assets and a higher amount is needed.

Short-Term Loans:

The short term loans offer two main ways of borrowing. They are,

  1. A loan to meet the expenses of larger purchases.
  2. Credit cards that offer immediate payment for the expenditures made.

The most common short term loan used today are payday loans. The loan repayment period varies from a week to a month depending on when you receive your next pay check. This loan comes at a very high price. Payday loans were originally designed as an emergency stop-gap measure for one-time use. But the average payday loan borrower today takes out eight loans a year averaging $375 each for a total of  $3000 on this he pays $520 in interest and fees.  And rather than using it for emergencies 69% of payday loan borrowers use the money to pay recurring living expenses such as rent, food and credit card payments.

About the Author:

Michelle is a tech writer from UK writing for Rush-My-Pay.co.uk which offers payday loans.  She is into Finance.  Catch her @financeport

 


 

Editor’s Note:

According to the Consumer’s Union: “Payday” loans are small, short-term loans made by check cashers or similar businesses at extremely high interest rates. Typically, a borrower writes a personal check for $100-$300, plus a fee, payable to the lender. The lender agrees to hold onto the check until the borrower’s next payday, usually one week to one month later, only then will the check be deposited. In return, the borrower gets cash immediately. The fees for payday loans are extremely high: up to $17.50 for every $100 borrowed, up to a maximum of $300. The [annual] interest rates for such transactions are staggering: 911% for a one-week loan; 456% for a two-week loan, 212% for a one-month loan.

According to a Pew survey, if payday loans weren’t available the majority of borrowers would cut back on expenses, delay paying bills, borrow from friends or family and sell or pawn possessions… My advice: Act as if Payday loans don’t exist! The alternatives are more reasonable approaches that won’t increase your debt load.  Tim McMahon~editor

See Also:

The Wealthy Buy Assets, the Poor Buy Liabilities, and the Middle Class Buy Liabilities Believing They Are Assets

Consumer Credit Counseling

What You Should Know When Getting a Mortgage

The importance of Mortgage Pre-Qualification

Help! Our Mortgage Payment is Too High!

 

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