Before choosing between a short-term loan and a long-term loan, it’s important to understand the difference between each. Both loans are designed to fund a specific project or goal for a limited period of time. However, how they accomplish this differs greatly. With a short-term loan, you can expect to obtain funding for a specific purpose that typically lasts less than three months.
A lender will require collateral to secure the risk of having their money returned if you fail to repay the loan. If you need more time than that to finish your project, then going with a long-term loan may be better suited for you instead. Read on for more details.
What is a Short-Term Loan?
A short-term loan is a loan is also called online payday loans, that lasts, on average, between thirty and sixty days. That’s right, the length of this loan will vary from person to person based on your creditworthiness. A short-term loan is designed for very specific reasons.
For instance, you might seek to borrow a certain amount of money for a short period of time because you need cash for an important event, such as a wedding or medical procedure. Another common reason for taking out a short-term loan is to bridge a cash shortage until your next payday. If you don’t want to miss out on this cash, a short-term loan is an option for you.
What is a Long-Term Loan?
A long-term loan is a loan that lasts more than six months. With a long-term loan, you have freedom when determining the best way to repay the loan. You can choose to repay it in one lump sum, pay it back over a period of time (with interest), or even combine both. There are many benefits to taking out a long-term loan. For example, you don’t have to worry about the risk of missing a repayment, as it’s backed by your credit history.
You can also apply for a long-term loan in order to make improvements to your business, such as purchasing more office equipment. Because a long-term loan is backed by your credit score, you won’t only be able to borrow a significant amount of money, but you’ll also be able to obtain a high credit score as well.
The Differences Between a Short Term and Long Term Loan
– The Loan Length – A short-term loan is designed for a specific purpose that typically lasts less than three months. A long-term loan is designed for a duration of more than six months.
– The Cost – Short-term loans are often more expensive than long-term loans because of their short length.
– The Interest Rate – The interest rate on a short-term loan will be higher than the interest rate on a long-term loan.
– The Terms – A short-term loan is often subject to an “accrued interest” clause, which means that you will be charged interest on the amount of the loan each day that you have it.
– The Secured and Unsecured Loans – A short-term loan is often unsecured, while a long-term loan is either secured or unsecured.
Why Should You Even Consider a Short-Term Loan?
Short-term loans have a definite use, and it’s when you need cash for a specific event, and you have a short timeline. For example, you might need to cover a portion of a wedding gift, or send a portion of the gift to your fiancé’s parents. You can’t do this with a long-term loan.
Another use for a short-term loan is short-term cash flow issues. For example, if you have some unexpected expenses, such as a car repair or an accident that caused you to be late on a payment, a short-term loan from InstantPaydayLA can help you get by until you can get back on schedule.
Why Should You Consider a Long-Term Loan instead?
When you need a longer term on a loan, you have more control over what you’re getting yourself into. For example, you can use a long-term loan to bridge a cash shortage until your next payday or pay off your other debts. You can also use a long-term loan to make improvements to your business, such as purchasing more office equipment.
In order to get the most out of a loan, you want to make sure that it’s right for you. A long-term loan will give you much more freedom to make the best decision for your situation. With a long-term loan, you can turn a profit by choosing to pay off your loan with a lower rate of interest or make improvements to your business that will increase its worth.
Determining if you need a Short-term or Long-term Loan
If you’re not sure whether you should go with a short-term or long-term loan, there are a few things you can do to help you decide. First, take a look at your cash flow. If you are experiencing cash flow issues, a short-term loan may be better for you. If, however, you have the money to pay your bills, and you’re just lacking the cash for an urgent expense, a long-term loan may be better.
The other thing you can do is to compare the interest rates on both types of loans. If one is significantly higher than the other, it may be worth it for you to consider a different loan type. Ideally, you would want to find the most suitable one for your needs.
Summing up
Choosing between a short-term and long-term loan can be tricky, but there are a few things you can do to help you decide. First, take a look at your cash flow. If you’re experiencing cash flow issues, a short-term loan may be better for you. If, however, you have the money to pay your bills, and you’re just lacking the cash for an urgent expense, a long-term loan may be better.
The other thing you can do is to compare the interest rates on both types of loans. If one is significantly higher than the other, it may be worth it for you to consider a different loan type.
