Long Term or Short Term Loans Which One Should You ChoosePersonal loans have become easily accessible thanks to the digital era introducing a number of instant loan apps and credit websites. Even the traditional mode of personal loan has simplified the loan application process. Financial firms in India have a set variety of personal loan offering in the form of long term and short-term loans suitable for borrowers from diverse social and economic backgrounds.
Based on the loan tenure, personal loans are categorised as short term and long-term loans. Whether personal loan is required for a new venture, sufficing working capital requirement or paying medical bills, the loan amount and interest rate charged over it are the deciding factors to shortlist the type of loan. If you borrow less, there might be a need of taking another personal loan soon and if excess loan is taken, repaying it on time becomes a burden. Hence, it is important to identify as to which loan type whether short-term or long term will fulfil your financial need at that point of time.
Here are some basic factors differentiating between short term and long-term loans:
- Loan Duration: A short-term loan is generally taken for 1 to 5 years whereas long term loan is taken for a prolonged period varying between 10 to 20 years.
- Rate of Interest: A higher rate of interest is charged on short-term loans for the lenders to make considerable profits during the chosen short-term period.
- Loan Amount: Short term loan amount vary between Rs. 15,000 to 2 lakh, depending upon the loan provider. This is easy to repay when broken down into EMIs. With long term loans where the loan amount is around 5 lakh or more, repayment of EMIs go on for a longer time.|
- Loan Approval: The time taken for short term loan is quick with minimal documentation whereas long term loan with a higher amount requires more verification of the borrower’s credit worthiness and assets.
A short-term loan is valuable especially for small and medium sized businesses or start-ups. Short term loans are also helpful for sudden financial problems. Pay day loans and cash advances are types of short-term loans having the below advantages:
- Less risky compared to long term loans as the amount to be repaid is less
- Available even to those borrowers having low credit scores
- Resolves sudden cash issues with 24 to 48 hours
- No restrictions on how you can use the loan amount
- Formalities and documentation are minimal that enables quick approval
Borrowers with a positive credit history can easily acquire a long-term loan to fulfil major expenses in professional and personal lives. The advantages of borrowing a long-term loan are:
- Can be used for multiple investments
- Minimizes the impact on operational cash flow
- Structured payment process that successfully enables the borrower to clear EMIs over a long period of time
- Repaying long term loans timely can build a strong credit score
- Path for future loan applications is cleared once long-term loans are successfully repaid
Both that borrowers can acquire with a set of personal and income documents. Decide which loan types suits your financial requirement and apply for a loan accordingly. Check the eligibility criteria before filling the loan application form.