In the present times, nothing is too expensive or out of range, thanks to the concept of loans. From buying a car to financing a vacation, you don’t have to worry about paying for it all at once. You can avail for a loan and then pay for it in installments. Some requirements are short-term, while some require a longer duration of time to repay. So before selecting a loan, have a look at the details of short-term and long-term loans. 

What Is A Short-Term Loan? 

A short-term loan is availed by people to meet their immediate credit requirements. With higher interest rates, short-term loans offer flexible repayment schedules which involve repayment within a year of the approval. These types of loans generally cover unforeseen credit requirements. It is essential to have a good credit score to avail a short-term loan because this type of loan does not require any other collateral so having good creditworthiness is crucial to be eligible for it. 

Types Of Short Term Loans: 

A variety of short-term loans are available. Some of them are listed below: 

1. Hard Money Loan: Short-term loan is provided by private lenders like Maryland Hard Money Lenders, hard money loans are popularised by the name of bridge loans. Hard money loans are extended against real estate as collateral and are mainly used by real estate investors.
3. Personal Loans: Personal loans are used by people to fulfill their short credit requirements. This type of loan does not require a purpose to be specified and generally, no collateral is required.
5. Demand Loans: Demand loans are extended by both banks and other financial institutions to both businesses and individuals. The tenure of the repayment is fixed by the borrowers’ and lenders’ discussion. The repayment can be made anytime between the decided tenure. 
7. Bank Overdraft: Offered to salaried customers by the banks, this facility allows the customers to use credit even when the bank account reaches zero. The account holder can withdraw more than the limits set for their bank accounts. 

Advantages And Disadvantages Of Short-Term Loans: 

The short term loans have their own pros and cons, some of which are listed below:

Advantages:

• Provides easy and quick loans for unforeseen situations. 
• Since the repayment is short-term, the additional money paid in the form of interest is reduced. 
• The process of applying for and getting a short-term loan is not very lengthy. 

Disadvantages: 

• Due to its short-term nature, the interest rate is comparatively higher
• If the applicant’s credit score is inappropriate, the chances of loan rejection increase. 
• The loan amount is generally small, so large credit requirements cannot be met with it. 

What is a Long-Term Loan? 

Exactly as it sounds, long-term loans are used by people who plan on spending a fortune in the near future. Since the installments are spread over a longer period of time, the interest rates are comparatively lower in the case of long-term loans. In such cases, the documentation process can be a little time-consuming, and a collateral requirement is also added.   

Types Of Long-Term Loans: 

1. SBA Loan: This type of loan is availed by startups and businesses that want financial assistance for the maintenance, setting up, and to fulfill other requirements of the business. Small business loans are advanced by both banks and other financial institutions. 

1. Education Loan: Extended to students who want to pursue higher studies, both international and domestic, at convenient repayment terms. This type of loan comes in extremely handy when the exorbitant academic fees are supposed to be paid within a given time frame. 

1. Agriculture Loan: Agricultural supplies like fertilizers, harvesters, irrigation equipment, storage of crops, and other products are costly and difficult to purchase all at once. So to make the purchases of the products convenient, agricultural loans are advanced to farmers on easy policy terms.

1. Home Loans: Home loans are advanced to the borrowers who want financial assistance at the earliest to build, renovate or purchase a house. House loans are structured loans with a long-lasting repayment period because of the high principal amounts. 

Advantages and Disadvantages Of Long Term Loans:

Critically analyzing the process gives us a list of long-term loan pros and cons. Listed below are a few of them: 

Advantages: 

• The repayment of the loan amount is easier because of the tenure of repayment. 
• The rate of interest is lower in long-term loans
• At times, there is an added incentive of tax exemption if one avail of a long-term loan. 

Disadvantage: 

An unnecessary burden is added to the principal amount due to the piling up of interest rates with every installment. 

The issuance of long-term loans requires some kind of collateral as a security to be kept with the bank in case of potential default. 

Long-term loans are an added burden on borrowers because a part of the income source has to be kept aside for repayment at regular intervals. 

This detailed comparison can help the borrower to make an informed decision regarding the type of loan that should be chosen according to the requirements.