What Are the Differences Between Short-Term and Long-Term Loans?
Most individuals are familiar with financial needs. Unfortunately, some of these needs tend to surface when one is financially pressed, causing financial tension and instability. Most people will settle for loans whose repayment periods vary.
Varying factors determine the different loan types and repayment schedules. However, two major loan types exist today, and they are long-term and short-term loans, as discussed below. Before choosing any of the types, one has to factor in a few things. Consider the pros and cons of all loans before making a move.
Short-Term Loans
Lenders offer different types of short-term loans. Repayment durations often run for 12 months. They are provided as an immediate solution to liquidity needs after assessing borrowers’ profiles.
Major Features
Several factors identify short term loans, and they include:
- Very high APR- Interest rates are often higher, especially if the loan is due sooner.
- Short repayment schedules- Borrowers pay both the principal and interests within fixed loan terms. Repayment schedules are usually weekly or after two weeks.
- Less cash allowed- Short-term loans can only provide small cash amounts.
- No security needed- Most of such loans are unsecured. Collateral is not usually a major concern because the borrowed amounts are low and repayment periods shorter.
Common Types of Short-Term Loans
Below are some of the most popular short-term loans different lenders offer:
- LOC – Line Of Credit
Lenders check for borrowers’ creditworthiness before determining the amount to offer as loans. This is what a LOC loan is about. You can get a higher loan with better credit. These loans have a fixed interest charge. They also incur increased interest rate charges when defaulted upon. Once paid, one can access another loan.
- Emergency Loans
These are perfect for emergency cash access and are ideal for people who want a quick fix.
- 3-Months Loans
It is one of the most common loans in the UK based on the repayment duration, which is mostly manageable, hence their popularity.
- Short-Term Bank Loans
These are not similar to LOC loans. Upon payment, the borrower decides if they will re-borrow or not.
- Payday Loans
It is perfect for small business traders and personal borrowers with the loan amount depending on one’s earnings. Income percentage matters here with repayments being deducted as income comes in.
- Dental Loans
Dental loans are HCSTL and are often offered for emergency dentures, especially when teeth fall out.
Advantages:
- Easily accessed
- Fast approval rates
- They enhance borrowers credit scores
- Are unsecured
Disadvantages:
- Low amounts offered at a time
- Un-recommended long-term projects
- Strenuous to small-holder borrowers
Medium-Term Loans
These kinds of loans are intermediate of both short-term and long-term loans. They may not be preferred because most borrowers would rather go for long-term loans instead. They also tend to have higher interest rates but fewer processing procedures when compared to long-term loans.
Long-Term Loans
Personal long-term loans tend to have a repayment schedule of 5 to 7 years. Different lender types exist, ranging from banks, credit unions, and online lenders with varied long-term personalised loans. These loans work best for people who need large amounts to be repaid over a stretched period. A good example would be borrowing £50,000 to remodel your home kitchen as your long-term loan, which is to be paid monthly over time.
A great example of a long-term loan is a mortgage that facilitates the acquisition of property. Even so, long-term loans are numerous and diverse. Unlike short-term loans, these ones tend to require collateral.
Merits:
- Offer competitive interest rates
- Have lowered payments
- Guarantee large sums of money
Demerits:
- There is a lot of bureaucracy captured in the extensive paperwork
- Longer loan approvals
- Defaults could lead to loss of collateral
Long-Term Loans Varieties
The UK has a few loan types that include:
- Second Mortgages
This is an additional mortgage on the first one. You are allowed to apply for a second mortgage whose security will be your current property equity. There are no limits as to how much you can borrow.
- Home Improvement Loans
Such loans have been structured in such a way that they are specific to home improvement issues that encompass both minor and major refurbishment projects. These projects tend to vary in cost. An example of a loft or basement project could take up several hundred thousand pounds, hence the longer repayment periods.
- Logbook Loans
These are loans secured using your car as collateral as long as it is not a business car. It happens when you sign over the car’s ownership to the lender.
Comparing Vehicle Equity Release Loans with Logbook Loans
Log loans as simpler and quicker because of the car. Unfortunately, complaints on how such businesses are managed have led to their steady decline over time. The ease with which your car can be re-possessed scares many people off, which is why they are regarded as toxic loans.
Risks Involved
- Loss of car ownership in case of default. The car is often sold at a lower value, and you may need to cover any deficits.
- Poor reputation- Lenders are not trustworthy and have left many borrowers stranded.
- High interests- Unless you are desperate, it is advisable to stay away from them.
Do not rush to settle for such loans just because they require no credit checks. The aftermath is more devastating, hence the need to consider alternatives.
Auto Equity Release Loans
Statistics show that after homes, people love their cars most. Auto equity loans allow borrowers to take loans based on the value of their vehicles. They are structured in a similar manner as mortgage loans, but the car serves as collateral, meaning that it is somehow secure. The gains make them worthwhile compared to logbook loans. These loans also come with high levels of flexibility and do not feature ownership transfers.
Take Away
While crisis could push you to take loans, it should never be at the expense of your overall well-being. Don’t borrow out of desperation; calculate the risks involved, and go with what favours you most. Contact us for the best auto equity loans any time you are in need.