Knowing The Differences Between Long-Term Loans And Short-Term Loans

Were you ever faced with a situation wherein you need quick cash but it seems you don't know where to secure it? It doesn't have to be a huge amount but you still need it immediately, nevertheless. Examples are when your car suddenly needs urgent repairs or there are household bills you need to pay. Since you did not expect for these financial emergencies to ruin your monthly budget, you have to find a way to make things work. Still, because most people live on a fixed monthly income, they are at a loss on where to get the boost of funds from. This is where you can realize how important a loan is and how it can help you. But of course, it goes without saying that you should be aware of the kind of loan you are applying for.

We must keep in mind that a loan is still a form of debt. Assets are being redistributed from the lender to the borrower since one has them and the other needs them. Thus, the borrower is under the obligation to repay the sum borrowed under a specific set of terms and conditions also called as the loan arrangement. There are loans that have simpler terms and conditions of repayment than others and easier to repay. An example of this is what we call as short-term loans. When we talk of a short-term loan, it is generally an unsecured one which does not necessitate any security or collateral. It also has minimal requirements compared to other types of loans so you can process it and get approved faster. The disadvantage here is that you are given only a short period of time to pay off the loan and you have to pay a relatively higher interest rate.

One the other hand, there are also those types of loans that have more stringent terms and conditions since the amount to be borrowed is more substantial. These loans are basically called long-term ones and they are generally secured loans. We classify them as secured loans since the borrower needs to have collateral or security. The more common examples include so-called mortgage loans and auto loans. In some cases, there are also commercial loans that are classified as long-term and secured loans. In a long-term loan arrangement, the borrower can have a longer span of time to make the repayments but he must be able to sustain such payments. Otherwise, if you become unable to pay, the lender can go after the collateral or security you put up and possess or foreclose on the same.

These long-term loans basically carry lower interest rates than short-term loans because they are secured and they take a longer period of time to pay off. But with a short-term loan, the lender shoulders a lot of risks since he can only depend on the word of the borrower that he will faithfully pay the loan. But in cases where you need a quick boost of funds, it's really a short-term loan that is the better option. In case of doubts, it is still highly recommended that you talk to an experienced loan consultant first.

Knowing what type of loans will suit you the most will help you make a good decision, so make sure to visit our free and useful loan advice and tips.