Long term versus short term loans

Both long and short term loans may be used to meet personal and business goals.  The purpose of the loan, whether long or short term, determines the type of loan required.  However, loan amounts, contractual obligations, conditions, interest rates, fees, and costs do vary depending on the term of the loan.

A long term loan or a short term loan may be obtained from different sources, such as through government loan schemes, banks, financial companies and various loan firms.  Potential borrowers consider their present financial position in deciding the loan duration.

Business people may use short term loans, repayable within a couple of months, to cover operating costs for specific periods of income delay.  Longer term loans may be used to fund new business ventures, vehicles, or equipment. The size of the business can sometimes determine the term of the loan.

Long term loans usually provide a higher borrowing amount with slower and lower monthly repayments, while short term loans cover specific present costs with faster and higher monthly repayment amounts.  Mortgages are a prime example of long term loans with different options in interest payments, such as fixed-rate and variable-rate.

Creditors consider credit-worthiness and default risk in approving either long or short term lending.  A long term loan application with higher principal might be declined based on low credit-worthiness while a short term loan of a smaller amount might be approved, and vice versa.  Loan criteria differ between lenders so potential borrowers should explore all options to get the best value for their money.