Difference between Short Term and Long Term Loans

Created: 2017-10-04 11:10:00

Finding funds to support the growth of your small business is not an easy task. In recent years, the variety of lenders and financial products has increased. This leaves you with so many choices to make like picking the right lender, determining how much to borrow and the term of the loan to consider. Taking out the right loan from the right lender sets you up for your financial success. 

The term of your loan is very critical as it determines the amount of fund you can ultimately borrow and the amount of interest you'll be required to pay over time. Based on your financial needs it is important to ask yourself whether you need a short term loan or a long term loan. Short term and long term loans are vastly different from one another. Here's a distinction between the two to help you make informed borrowing decisions:

Long-Term Loans

A long-term loan refers to any financial debt involving a large sum of money that is repaid over an extended period of time. The payback period for long term loans can extend from 3 years to 30 years. They are normally secured through a bank or credit union. Mortgages, student loans, start up business loans home and improvement loans are good examples of long term loans. 

Long-term loans are credit based: this means that if your credit score is low, you might not qualify for this type of loan. There is also a chance that you might qualify but the interest rate will be higher for you. The amount you get will also be based on your credit record along with your income.

The application process for long-term loans is very complex and long. There is a lot of paperwork involved and strict standards put up by banks that you have to conform with.

In long term credit, the Interest adds up over time may increase the total amount repaid up to two times the initial loan amount.


Long term loans are high risk. They are usually collateralized with tangible assets like land, a car, or a building. If you are unable to pay off your loan, you risk losing your asset. Sometimes the loan can be unsecured meaning that it will have a higher interest rate since the lender incurs more risk.

Short-Term Loans

Short-term loans are loans that involve a modest amount of cash and are set to be repaid within a shorter period of time, usually less than a year. The repayment period is the most distinctive feature of long-term loans and short-term loans.

Essentially, short-term loans or payday loans are an easier way to achieve financial success, as opposed to long-term debt. The application process is less stringent which means less paperwork and quick funding.

Alternative online lenders like Cash Kitty have made It is easier for business owners to get liquidity than other traditional loans. It is easier secure a Cash Kitty loans through the online application and skip the restrictive loan requirements of banks.

One of the major distinctions between payday loans and long term loans is the interest rate you are charged for them. The interest rate for short term loan is considerably lower since it does not factor in the long repayment period and the risk involved as opposed to a long term loan. Payday loans are therefore more preferred by borrowers who can't afford to pay huge amounts of interest because of their limited finances.

The risk associated with short term loans is generally lower because of the considerably shorter repayment period. Payday loans are considered to be financially risk-free. They, therefore, do not require any form of collateral. This makes them easier to obtain than long term loans.

Unlike long term loans which are taken out for large investments projects that require large sums of money, payday loans are usually taken out to bridge cash flow gaps when there is an urgent expense on short notice.

Conclusion

A short-term loan provides you with a quick way of accessing cash, sometimes in as little as 24 hours. A long-term loan involves a detailed application process and a long repayment period.

Short-term loan service providers Cash Kitty offer online payday loans that provide a host of benefits to the borrowers. With Cash Kitty loans you are assured of getting that quick extra cash for your unexpected emergency. All you need to do is to apply online using a simple application form available on their website.

Whether long term or short term, it's important to choose the loan term that best suits your need to support your financial success

Warning: Late repayments can cause you serious money problems. For help, go to moneyadviceservice.org.uk