Short term vs long term repayment of loans: Which one should you choose?

When it comes to repayment of the loans, many people actually experience a dilemma between choosing a loan that has a short term repayment plan and a long term repayment plan. Loan repayment is a vital thing that you will need to check out in a loan policy. Defaulting a loan repayment can result in abrupt financial conditions. The repayment structure depends vitally on the loan tenure. While taking a personal loan, you can use the personal loan calculator easily.

The short term loans and the long term loans can be differentiated on the following accounts:

Amount of loan

When it comes to the amount of loan, you can find a clear distinction between short term and long term loan. In case your loan principal is low, you can consider taking a short term loan. The time of repayment is generally short if the principal amount is small.

If you have taken a loan that has a large principal amount, it can have a longer repayment tenure. Thus, it is named as long term repayment loan. However, there might be some exceptions present as it depends upon the lender that issues the loan.

Interest rate

The interest rate of the short term loan is higher than the long term type. A borrower can easily repay a long term loan in reasonable monthly installments. On the other hand, the interest rate of the short term loan is comparatively high as these are generally taken by the people having a poor credit score. Thus, the chances of defaults are higher in the case of short term loans. In the case of long term loans, there can be fewer defaulters for the loan.

What to choose? Short term loan or long term loan?

All loan structures have something unique to meet the individual financial needs of the borrowers. In case of personal loan, you can always check personal loan EMI calculation.  Here are some facts that you must always consider before choosing either a short term loan or a long term loan:

Amount of money

If the amount of money you are taking is high, you can conveniently take the long term loan. It will be comfortable for you to repay back the loan within the deadline. However, if the principal amount is low, then you can reduce the tenure. Otherwise, there might be chances for you to pay more interest than the principal amount.

The necessity of the money

If you have an emergency requirement for the money, you can decide to choose the short term loan. You can expect the liquid cash is coming in your hand quickly as the bank only gives a moderate amount in a short term loan.

There can be any uncertain scenarios in your business or personal life where you might need a lot of money. In such cases, if you are eligible for a personal loan or business loan of lump-sum amount, you can go for a long term loan. So, the utility of both short term and long term loan totally depends upon the borrower. As a borrower, you must always take proper suggestions from a financial expert before approaching any loan policy. An in-depth search on the internet can help you choose the right loan.

By correctly handling a loan, there will be lesser instances for you to experience the burden of debt. Any lending entity will look into your financial condition before granting you a short term or long term loan. You can thus, get a chance to make all the vital payments in liquid cash. Always remember to keep your credit score up to the mark to avail any type of loan.

Leave a Reply