Planning to apply for a loan? Most lenders offer two broad options for loans – long term loans and short term loans. The two options differ greatly in terms of obligations, interest rates, repayment schedules, and other factors that come into play. Most lending institutions have created specialized packages under each head to accommodate specific personal needs. You might be able to benefit from streamlined options in order to max out your benefits.
Each type of loan offers different advantages and disadvantages when contrasted against the other. It is therefore important to analyze your requirement closely before applying for a loan. Typically, the long term loan is considered to be more beneficial than short term obligations. Here are a few advantages you need to consider when evaluating your options.
Short term loans need to be repaid within a period of 12 months. On the other hand, long term loans may stretch over several years depending upon the requirement of the borrower and the lender’s policies. This translates into lower stress and therefore makes it a viable option for most people.
Typically, short term loans are approved for small amounts. It serves to offer surplus cash in the face of an emergency. You cannot acquire hefty loans on short term basis for the most apparent reason – it will not be possible for you to repay it within one year.
On the other hand, long term loans are usually provided for hefty sums that can be used for a variety of reasons including educational expenses, mortgages, car financing and others. The loan amount typically stretches over several thousands, empowering you to experience the luxuries of life!
Typically, it is possible for you to reduce your monthly installments significantly if you apply for a long term loan instead of a short term one. The loan amount is divided equally over several years, yielding a small amount of monthly payment you need to make in order to repay your debt completely. In contrast with this, you are pressed for a shorter tenure with small term loans. This automatically translates into a relatively higher installment each month.
With long term loans, you can benefit from lower interest rates as the lender-borrower association stretches over several years. Interest is typically charged on an annual basis. With long term loans, lenders have the incentive of a guaranteed interest income each year. This encourages them to offer the loan on lower interest rates.
On the other hand, short term loans are typically approved on extremely high interest rates. This means you might actually be able to save in case of long term loans.
In the end, however, it all depends on your requirement. If you are in need of a short term loan, it makes no sense to apply for a long term loan just for the sake of interest rates or other factors. You need to match up your requirements with the availability of the loan. Optimize your alternatives to find the best-fitted option.