The Advantages of Short Term Loans

2 Minutes Read

The loans industry can be confusing, but is divided between long term and short term lending. A
long term loan is typically characterised by offering amounts of over £5,000, whilst short term loans
are designed to cover short term cash flow problems. If you’re running short of cash and need a
small amount of money to tide you over until you payday, or need to fund an essential purchase
costing under £5,000, then a short term loan is the most typical type of loan to apply for.

So what are the benefits of the short term loan?

Cost of Loan

Short term loans can often seem more expensive than long term loans, but the high APR rates
attached to short term loans are calculated annually. If a loan is for only 31 days duration, what can
seem like a very high APR works out at much less, because the APR does not show the true cost of
the loan over a short period of time. It’s far better to look at the TAR Rate (Total Amount Repayable)
for a true picture of the cost.

Lower Risk

Taking out a long term loan commonly involves having to secure an asset such as a home against the
loan. Short term loans are legally binding and must be paid off, but if a default occurs, the borrower
won’t face the possibility of losing their home.

Bad Credit Score

It is often easier to borrow for the short term with a poor credit score.

Fast Paying Out Time

A short term loan will be paid out far more quickly than a long term loan; often within 2 – 3 days.