Finding lenders to support your needs and requirements according to your existing financial conditions is a bit tricky. Over the years, a wide range of financial products has entered the market to help borrowers keep up with their financial life. However, the functionality and features of the products may vary from one another. To understand which is the right product, you need to analyse your complete frame of financial, your current needs, how much can you afford, when can you make the repayments, and for how long you will need to take the loan, which lender or credit introducer to deal with, how to choose the right financial product and the list of factors that you must consider is endless. These are the important ones that must be kept in mind while applying for a Personal Loan.
In this article, we will discuss:
- Difference Between Short-term Loans and Long-term Loans
- How do they affect the cost of the Loan?
- How to Apply for them?
Both these are financial products that are used to raise funds for a wide variety of reasons such as to cover an emergency medical expense, to make home renovations, to purchase a new vehicle, to fund an exotic trip with your family, to cover wedding expenses or any other reason. You must not decide to borrow a loan whether a short-term or a long-term if you’re planning to use that money in a new business or venture, or if you want to invest the money in stock and share market, or for gambling, or any other illegal activity. The amount raised must be used for legal and personal activities as mentioned.
|TERMS||SHORT-TERM LOAN||LONG-TERM LOAN|
|Period of Repayment||Generally, you can take out a short-term loan for a period of less than or equal to 12 months.||A long-term loan can be borrowed for 7 years or more, depending on the lender and other factors.|
|Collateral||Most of the lenders do not require any collateral if you have a perfect credit score.||Collateral such as your home is required to be used as security for taking out a long-term loan.|
|Interest Rate||The interest rate that is offered on these unsecured loans is usually higher than secured loans.||As these are taken out for a longer period of time, the interest rate is lower as compared to short-term loans.|
|Amount||You can borrow a small amount of money – £100 to £2,500.||The amount may range from £1,000 to £35,000.|
Depending upon your needs, you have to choose the loan type. Suppose, you need to fix a leaky rooftop in the middle of the month when you are already running short of cash, you can go ahead with a short-term loan. Even if you do not have a spotless credit history, many lenders offer Short-term Loans for Bad Credit profiles as well. However, the interest rate of this loan may be higher due to the risks involved in it. Credit providers consider bad credit profiles as a risk as there is a probability of the borrower to default on the payments – which is conceived due to his credit rating. While people who have an excellent credit score will get offers with a low-interest rate.
Your monthly repayment amount depends on the total loan amount that you have taken, the duration of the loan and the Annual Percentage Rate (APR) levied on it – for both long-term and short-term loan. Now, consider this:
- For long-term loans: Generally, you borrow a larger sum of money and hence, the APR is comparatively low. The monthly repayment value will be affordable and lower as the cost of repayment is spread over several years allowing you a financial breathing space.
- For short-term loans: As you borrow a small amount of money for a smaller period of time, the monthly repayment amount may be higher. Because here, your repayments are spread over several months, generally, 12 months.
Borrowing a loan without a proper plan and repayment strategy may create chaos in your financial stability as you may not be able to keep up with the budget. Therefore, consider taking out a loan only after creating your monthly budget after all the necessary deductions such as – mobile bill, rent, gas bill, grocery expenses, utilities, etc. If you have enough money left to service the loan and manage additional expenses that may crop up, then you may think about borrowing a loan.
Otherwise, it will have a serious and damaging effect on your credit score. With an unsecured personal loan, nothing is at stake but your credit score. And with a secured loan, your home may be at the risk of being repossessed by the lender if you miss the repayments.
Explore. Before making your decision, explore the websites of various lenders and brokers to find out what are the available financial products and which one will fit your needs perfectly. The lender or credit broker must be authorised by the Financial Conduct Authority (FCA). That way, you will be in safe hands. Calculate the amount that you need and for how long, fill in the loan application by visiting their website and submit it after carefully reviewing all the information that you’ve provided to avoid rejection.
The lender will conduct a credit check on your profile and a few necessary verifications before giving their results. Some lenders prefer soft credit checks that don’t impact your score, however, a hard credit check is also mandatory before the final approval. Beware of advertisements that offer Short-term Loan with No Credit Check as all the lenders who are licensed by the financial regulator have to run a credit check to measure the borrower’s repayment ability and affordability.
The decision of the lender can be viewed on the screen within a few seconds with their quotes such as APR, and all other additional information. If you agree on the Terms & Conditions of the loan that is offered by the lender, you may accept it or else you may choose not to deal with them.