Short-term and long-term loans are generally used for very different reasons. Short-term loans typically have a repayment period of one month or less. Long-term loans come with longer repayment terms. An interim category called installment loans offers loan amounts and terms that fit between the other options.
Which One to Choose? Short Term or Long Term Loan?
There is no better or worse option when it comes to loans. Your decision should be based on what works best for your needs. The two main factors are how much loan you need and how long you need to pay it back. These factors may conflict, but if you determine your loan need (least amount you need) and then look at when you are comfortable paying it back, you can find the optimal solution.
How Long Do You Need to Pay Back Your Loan?
This is the first question to ask yourself when looking for a personal loan. If you are looking for a loan to cover an emergency or an unexpected expense, a short-term loan should take care of your immediate needs. When your requirement exceeds $1,000, you will have to consider installment loans or even a mortgage or large personal loan.
Keep in mind that large, traditional loans require much higher credit scores and take more time to review and process. This can mean weeks of waiting.
Suppose you have an emergency expense like an auto repair, medical bill, monthly rents, home repair, or utility bill that is due. In that case, you may consider a short-term online loan that will cover your immediate needs.
Remember that your term will be one month or less with an online payday loan depending on where you live (state law) and your lender.
What Loan Term Factors Alter the Payback Time?
The principal payment each month is lower with a long-term loan because the total amount you borrowed is spread out over a much longer period. Long-term loans are always better if you need a larger loan amount.
For short-term needs, the online payday loan is a fixed, fee-based loan that is paid back quickly. The fees are state-regulated and often capped at the same rate as a credit card. As long as you pay it back on time, you know what you will owe in total before you accept the loan.
Does the Interest Rate Remain the Same During the Length of the Loan?
This depends on the loan and is therefore variable. There are fixed-rate loans and variable rate loans, similar to credit cards. It is best to avoid variable rate loans. This is especially true now when rates are at historic lows and sure to go up. A variable rate loan will almost certainly go up over time, increasing your overall expense.
Are There Any Advantages of Short Term Loans?
Short-term loans allow you to get money faster than any other loan type. You can enter a loan request from a smartphone in 5 minutes or less and get an answer in seconds. You can also apply 24/7 and 365 days a year, which is impossible with traditional/long-term loans. You can often get your loan funds in just one business day once you are approved after requesting the loan. There is no collateral for short-term loans like payday loans. Other loans may require your home, auto, or other collateral to be tied to the loan before you can qualify.
Short-term personal loans also allow people with poor or bad credit to get a loan that they would not qualify for if they seek a loan from a traditional lender. Though these loans are not right for everyone, millions of Americans use them every year because they are the best solution for their situation.
Banks, credit cards, and friends and family may offer you better loan terms, so you should check these options before requesting an online payday loan.
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