For many people, choosing a long-term over a short-term loan seems like a no-brainer. Longer term loans have lower amounts per payment and the prospect of repaying a loan over the long term may mean less financial pressure. The truth is hardly as black-and-white since there are some real benefits to taking out short-term loans that you might want to consider.
At first glance, it may seem that a short-term loan attracts higher interest than a long-term loan. Upon deeper investigation, you realize that the short duration in which you pay the short-term loan means less time for interest to accrue. There is also the issue of inflation as you continue to repay your loan. All things considered, a short-term loan doesn’t continue to eat into your finances once you pay it off.
The fact that you need to take out a loan means that your income or finances are not as stable as you wish them to be. This situation is very common considering the economic times we live in. A short-term loan allows you to plan for the near future.
As long as you know there is money coming in every so often, you won’t have the stress of repayment hanging over your head. With a long term loan however, a lot can change within a year or two. In the unfortunate event that your finances take a downturn, you are still responsible for repaying a loan that you might have paid off much faster.
Sometimes you simply can’t wait for the bank or lender to go through your application and navigate the bureaucratic red-tape before approving your loan. Short-term lenders are efficient and can process the payment on the same day of the request or the next day depending on when you submit the application. If you need a $500 loan urgently to pay suppliers or meet some other urgent need, you can count on a short-term lender to deliver the money quickly.
Finally, a loan hanging over your head for months and years isn’t a good feeling for anyone. This includes the fact that you probably have your assets tied up in the loan as collateral. Short-term lenders don’t usually require collateral. As long as you honor your payments, you can have the loan cleared in a short time and begin to make long-term plans with your money. A long-term loan restricts the kinds of financial commitments you can make for the duration of the loan.
The main advice you should keep in mind is to choose a reputable lender should you decide that a short-term loan is the answer to your financial problems. Make sure that the lender is transparent with all the terms of the loan and that there are no hidden or unexpected charges.