Difference between Short Term Loan and Long Term Loan
Loans are availed for various reasons and repaid through EMIs during a specific tenure. Depending on the reason as to why the loan is availed, the tenure of the loan can be either short-term or long-term. Just to give a simple example, a home loan will by nature be a long term loan as compared to a personal loan for a vacation which will be a short term loan. So how does one decide which is better when it comes to a debate between short-term loans vs long-term loans?
Before availing a loan, borrowers must understand how they can repay the loan faster. Hence, it makes sense that the term of the loan should be decided by borrowers themselves.
Before understanding the difference between a short-term loan and a long-term loan, it is important to understand the concept of a term loan.
Let’s understand Term Loans
A term loan is defined as the funds borrowed from a bank or a financial institution with a specific borrowing term. When individuals avail a term loan, they agree to repay the lender a decided amount during the repayment period, along with a specified interest rate. This interest rate can either be a fixed or floating interest rate.
Term loans can be used for either short-term financing or long-term financing. While businesses tend to avail a short-term business loan or a long-term business loan, unsecured personal loans and secured loans are also term specific.
A home loan, being a secured loan, can be classified as a long-term loan. Whereas a personal travel loan can be availed as a short-term loan and a long-term loan.
Difference between Short-Term Loan vs Long-Term Loan
It is important to understand the difference between short-term loans vs long-term loans if you are a first-time borrower:
Let your requirement define the Loan you need
When it comes to choosing the best term financing, both short-term loans and long-term loans have their pros and cons. The repayment capacity of the borrower should be kept in mind when the borrower agrees to the tenure or term of the loan, be it a short term loan or long term.
To start with, individuals should first use a personal loan EMI calculator to find out the EMI amount that will need to be paid throughout the tenure. NBFCs like Finnable have an online personal loan EMI calculator which can be used by borrowers to determine their EMI amount.
If they feel that the EMI is too high for the short-term, they can choose to spread their repayment over a longer tenure.
Finnable also provides short-term loans as well as long-term loans to individuals who require financial aid, without the need to pledge an asset. The funds from their instant loans can be used for travel, home renovation, covering medical expenses, etc. with minimal documentation and affordable interest rates.
Learn with Finnable
People also search for
Personal Loan | What Is Emi | What Is E Mandate? | What Is Unsecured Loans | What Is Unsecured Loans | Education Loan For MBBS | What Is Apr | Types Of Personal Loan | How To Improve Cibil Score | Instant Loan Without CIBIL | Types Of Unsecured Loans | Personal Loan Tenure | Home Loan Vs Personal Loan | What Is Loan Repayment | Personal Loan Vs Gold Loan | Importance Of Credit Rating | Personal Loan Benefits | Difference Between Secured And Unsecured Loans | Difference Between Advance And Loan | How To Apply For A Student Loan | What Is Loan Repayment
