Short-Term Loans vs Long-Term Loans: Which One Is Right for You?
There may come a time in your life when you need to apply for additional finance to help you cover the cost of living. For example, if you’re struggling to make ends meet and you’re faced with an unprecedented expense like a broken boiler or urgent car repair. This is where a quick loan could help. Short-term loan lenders offer small amounts to help you cover emergency costs when your salary may not. But what’s the difference between a short-term and a long-term loan, and which should you choose? Read on as we compare the two!
What is a short-term loan?
As the name suggests, a short-term loan is a type of finance that is paid back over a short amount of time, typically less than a year. They are mostly used to help deal with an unexpected expense that your monthly income or savings will not stretch to cover. They are a range of different short-term loans to choose from, one of the most notable being a payday loan. They’re typically used to pay for urgent home repairs, vet bills, or car repairs – things that cannot wait until payday. Many short-term loans are offered by online lenders that make the application process simple and can make a decision on whether you’re a trustworthy borrower in as little as 24 hours – helpful if you need money quickly.
What are the benefits?
So, what are the advantages of choosing a short-term loan? Here are some of the most notable:
- Quick access to cash: If you need cash in an emergency, having access to it in as little as 24 hours is beneficial. Short-term loan lenders offer easy applications and fast approvals that can be helpful if you’re dealing with a time-sensitive emergency.
- Improved credit score: If you apply for a short-term loan and know you have the money to pay for it, including interest, you could see your credit score improve by paying your debt repayments on time. It’s worth noting this could work the other way if you fail to pay your loan off.
- Smaller loan amounts: This is what makes short-term loans preferable to some other types of loans. They offer smaller amounts which are preferable to help you with an emergency without having to deal with a large burden of debt.
What is a long-term loan?
In contrast to a short-term loan, long-term loans are typically paid off over a period, usually over a year. They tend to be used for larger purchases, for example, buying a house, or business, or making large purchases. There is a range of different types of long-term loans to choose from and a range of lenders that offer them. As long-term loans tend to be for a greater amount of money, you may require a good credit score so lenders can see you’re a trustworthy borrower. They come with lower monthly payments as you’re paying them over a longer term and can sometimes require collateral.
What are the benefits?
When comparing short-term and long-term loans, it helps to look at the benefits of both. Here are some of the advantages that come with long-term loans.
- More time to repay: The name says it all! Long-term loans are spread out over a longer period, giving you more time to make repayments. This makes it easier to spread out the cost of the loan in line with your budget.
- Lower interest rates: Long-term loans come with lower interest rates. If you have a good credit score, the total amount of interest you’ll be paying will be less than a short-term loan.
- Higher loan amounts: These loans allow you to borrow larger sums of money, so can be helpful if you’re making a large purchase, or you need help to pay for an important life event.
Which is right for you?
When choosing between a short-term and long-term loan, there are a few things to consider. Firstly, if you need money quickly, a short-term loan lender that has fast approval rates could be the preferred option. Also, you need to think about how much money you need to borrow. Are you simply applying for a loan to cover the cost of a boiler repair – £100 or so – or are you applying for a loan to buy a house? If you’re looking for the former, a short-term loan is the best bet. If you’re looking for the latter, a long-term loan would suit you perfectly.
When They Get Older recommends taking independent financial advice if you are uncertain about financial decisions.
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