Understanding the difference between long term loans and short term loans

Do you know that there are various advantages and disadvantages to both long and short-term loans? Both long term and short term loans can provide access to financial resources that are needed, but each one has their own purposes. And knowing the difference can help the borrower in choosing the best financing company that they may approach.


Long-term loans are meant to be paid off in small amounts over long periods of time. This can range from a few months to over 20, 30 or even 40 years. Most of these loans are processed and funded by traditional banks, financial institutions, and lending agencies, and require a full financial background check. Examples of long-term financing include mortgage payments, vehicle loans, and school financing. Designed to provide substantial amounts of money that can be paid back over many years, the interest rate and fees associated with them depend largely on credit approval as well as work history, assets and a host of other factors. The drawback to long-term financing is that the application process takes a lot of time and generates and requires a lot of documentation and paperwork. Additionally, the need for a guarantor is common, especially in this complex and still weak economic climate. However, for those looking for a new car or a home loan, this is the more appropriate course of action to take.


Short term loans, usually referred to as payday loans are geared for those who need access to cash fast. Designed to be easy to get and quick to pay off, they are the complete opposite of long-term financing. Usually, the application process is much simpler to walk through, and the requirements for getting these loans are much easier. Generally, the only thing that lenders look for is a bank account, steady job, and income. Since most of these loans are paid off in a matter of days or weeks, they have very high-interest rates. However, they also hardly require a credit check or the need for a guarantor, and best of all, the application only takes minutes to complete, and funds are usually distributed the same day. This is a powerful and convenient tool for many who would otherwise be out of luck in terms of getting some extra money for the short term.

In the end, make sure that you know which options will work in your particular situation. The difference between long and short-term loans is how the money will be used and what the time frame is in terms of repayment. Making any financial decision take some planning and careful consideration to avoid the pitfall of creating a mountain of debt.