Types of loans differ with the needs of people borrowing them. Each type of loans caters to some specific needs of people. To get the maximum out of the loan, it is important to understand what benefit each type of loan offers and what its limitations are. Short-term personal loans pose their own advantages and disadvantages. Similarly, long term loans have their own merits and demerits.
Short term personal loans can be taken to meet temporary cash requirements. You can use them to go on a vacation, buy laptops and cell phones or meet other emergency cash requirements. In business, short-term loans can be used to get benefit of an arising business opportunity, meet short term cash requirements, fulfilling an urgent order, for maintenance of machinery or coping with any other emergency situation. Suppose, you get a big order that can generate good profit for you, do not worry if you do not have enough money to fulfill the order, you can apply for a short-term loan and complete the order. Similarly, sometimes, a new business opportunity emerges that demands instant cash. A short term loan can fulfill this need.
The main benefit of a short-term loan is the small time duration in which you will get rid of the loan. You can pay the installments within a year and finish this liability. They are comparatively faster to get due to less paper work included.
But, like everything else, short-term loans have their own shortcomings. They usually require some kind of security as a guarantee to back up the loan. Short-term loans also have higher interest rates as compared to other types of loans. So, they may actually be expensive for you at times.
Long-term loans, as the name suggests, are taken for longer durations. You can apply for bigger amounts when going to use this option. Long term loans can be taken for business and personal purposes. Mortgage and auto loans are long-term loans that are taken for fulfilling personal needs while if you are planning to expand your business, buy a factory or other property that will be used in your business, you will definitely g for the business long-term loans.
A good thing with long-term loans is the interest rate that almost remains the same throughout the loaning term. That means, you will know exactly how much you have to pay each month and you can arrange your finances accordingly.
But the approval process is lengthy as compared to the short term personal loans. Documentation is extensive and time consuming. But, just like short-term loans, you have to place some kind of collateral with the lending company as a security.
Long-term loans can take 2 to 30 days to be repaid. This a huge time period and anything can happen during this time. It is possible that the person does not remain capable enough to repay the loan. You may also face prepayment penalty in case of prepayments.