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Short Term Or Long Term Loans?

Short Term Or Long Term Loans?

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Which is better: short-term or long-term loans? It depends on your needs and the capacity to pay. Just keep in mind that debt generally costs more if you will not use the loan proceeds wisely. Here’s the rule of thumb: Know how much you need, understand how you will use the available funds you have and keep tabs of your expenses.

You may have thought about getting a loan at this point in your life. But, which is better: short term or loan term loan(s)?

A loan is a sum of money which you borrow with the intention of repaying over a period of time. You may find a loan for various reasons-but the reality is here. It is simply borrowed-you have to pay it back, with interests.

What’s the difference between short term and long term loans? When is it wise to get one?

Reasons

Short-term

If you are looking to pay for minor purchases and you need money right now, maybe because you maxed out your credit card or you’re looking for a cheaper financing alternative, a short-term loan could work. It helps you solve minor cash flow issues so you can deal with some financial setbacks.

If you have medical fees and utility bills to pay, you would want to get that stash of cash right away. Perhaps your supplier offers 50% items on supplies you need and you need the money now. Or, maybe your car broke down, there is a family emergency or you simply need a couple of thousand dollars for your project. Then, short-term loans would be the answer.

Are you thinking about expanding your business but you only need a small capital? Inject money into your daily operations with a short-term loan that won’t burden you with years of repayments. Pay off bills, cover for emergency situations, and do anything you need, using short-term loans especially when you can save money or earn more if you do. Some people also use a short-term loan to consolidate multiple debts. It restructures your debts and helps you pay them off all at once and get better loan terms, simply because you only have one loan to pay.

Long-term

Long-term loans are intended to cover for big purchases like fixed assets, major business expenses, cars and other properties that may take years to pay. They give you more flexibility in payment options compared to short-term loans. You may opt for fixed-rate and adjustable rates, while you enjoy the bigger loan proceeds that can help you carry out your big and long-term plans. You can take it for an extended period of time. Examples of long term loans include mortgages, business loans, improvement loan and other loans that involve a substantial amount of money.

If you are struggling with credits, you may have to take a closer look at your credit report. Most long-term loans are credit score based. Meaning, you have a good chance of getting better loan interest rates if you have a good credit score.

There are two types of long-term loans: secure and unsecured. Attaching collateral on the loan makes it a secured loan. When you don’t have to attach any asset and the lender approves your loan-be ready for a higher interest rate, because unsecured loans often charge a higher rate than secured ones. The reason is simple. Lenders are taking more risk when they cannot go after your assets in case you fail to pay the loan. To compensate for that risk they may charge you with a higher interest rate.

Can I afford the monthly repayments?

One major consideration when applying for a loan is your ability to repay it. If you are expecting enough money to repay the loan within a short period of time then short term loans can be a better option. The monthly repayment is high, but you will be able to repay it in a short amount of time.

Normally, short term loans are up to about 36 months. A payday loan is a good example of a short-term loan. There are only a few requirements, you can access the money in a matter of hours and there are no credit checks. There are also flexible loans and many other types of personal loans with a loan term of 1 month to 12 months or more. It capitalizes on the length of your loan, so be sure to keep it short.

If you want to take out a loan over an extended period of time, enjoy the flexibility of payment and lower monthly dues, then getting g a long-term loan like a mortgage is a good choice.

Bottom Line

So, which is better: short-term or long-term loans? It depends on your needs and the capacity to pay. Just keep in mind that debt generally costs more if you will not use the loan proceeds wisely. Here’s the rule of thumb: Know how much you need, understand how you will use the available funds you have and keep tabs of your expenses.

If your loan proceeds exceed the number of your needs, don’t spend it on your wants. Use the remaining funds to ensure that you have a buffer when times get rough so that you have something to use without scrapping off your savings. If you know something about investment, do it. That will be a better way to use the remaining amount. By investing your money, you will be able to pay off your debt with the profits you earned from it.

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