With the rise in digitisation, getting funded through personal loan Apps has allowed individuals to obtain quick funding with instant approval and minimum documentation. Easy access to funds has given individuals the privilege of borrowing and repaying as per their preference.
Therefore, when considering a personal loan, one of the critical decisions is choosing between a Short-term and Long-term Personal Loan. Each choice carries its benefits and drawbacks, affecting everything from your monthly budget to your long-term financial well-being. Having a better understanding of both shall help you make a more informed decision that aligns with your financial planning.
In this blog, we will discuss the pros and cons of short-term personal loan and long-term personal loan that can help you plan your subsequent financial funding and decide which path suits your needs best.
What is a Short-Term Loan?
A short-term loan is a borrowing available for a short period. The repayment tenure usually ranges from a few months to a year. Short-term loans are unsecured loans designed to provide quick financial relief to borrowers who need cash to meet urgent expenses.
Pros & Cons of Short-Term Loans
Short-term personal loans have always been a preferred choice of immediate financial assistance for many. Due to its short-term nature, it offers distinct advantages and drawbacks that are important to consider before opting for a financing option. Let’s explore the significant pros & cons of Short-term loans and how they can serve as a lifeline during a financial crisis and provide quick solutions.
Pros of Short-Term Loans
Faster Loan Process
The foremost advantage of a short-term loan is that it is easy to manage, faster to get, and easier to apply for. Hence, applying for a personal loan on a short-term basis is beneficial at times of urgency, becoming the go-to choice for many.
Flexibility in Credit score
The credit score is the backbone of the overall financial representation. Nonetheless, having a relatively lower or average credit score on your CIBIL profile helps you avail yourself of a short-term loan. It makes it easier for people from diverse financial backgrounds to avail themselves of a loan. Fetching a short-term loan and repaying it on time also helps you increase your credit score.
Suitable for urgent financial conditions
Since Short-term loans do not require any collateral submission and can be obtained while submitting minimal documents, it has become the go-to option for several borrowers who urgently need money during accidental or emergency cases. You can apply for a Short-term loan to meet medical expenses, book a bike, purchase consumer durable goods, or meet travel expenses.
Repayment in easy Instalments
Repayment in easy instalments is one of the most appealing features of short-term loans, allowing individuals to pay back the borrowed amount in smaller, more manageable segments spread over a few weeks or months. The borrowers can manage to repay from their monthly income quickly. This setup reduces the financial burden on borrowers by avoiding a large one-time payment.
Less Paperwork
One of the notable benefits of short-term loans is the minimal paperwork, the application process is 100% digital. The reduced paperwork and simplified verification process make the borrowing process quick and make these financial solutions more accessible to a broader range of people, including those with less-than-perfect credit histories or those needing immediate financial assistance.
Cons of Short-Term Loan
Short repayment tenure
Short-term loans have short repayment tenure, where borrowers pay more in a short period. It feels good to be free from debts sooner and repay, but at the same time, you will need to pay a large amount of EMI, and it might imbalance your finances if not managed properly.
Higher borrowing cost
Short-term loans often come with a higher borrowing cost. Though higher borrowing costs provide immediate financial relief, they can also become more expensive options for borrowers. It’s important for the borrower to consider the total cost of borrowing, including any additional fees, to assess whether a short-term loan is a financially sensible choice.
Debt Cycle
A combination of higher borrowing costs and short-span repayment puts borrowers into a debt cycle for a certain period. It becomes necessary to have a high debt-to-income ratio when you are going for a short-term loan.
Borrowing Limitations
Short-term loans allow you to have a small amount of money to be borrowed. These loans are typically designed to target small funding needs such as emergency medical expenses, bike loans and purchasing consumer durable goods.
What is a Long-term Loan?
A long-term loan is a significant amount borrowed from a financial firm for a longer repayment tenure. Usually, the payment tenure is in years. Long-term loans are secured loans where the borrower has to provide collateral to the lender as a security measure.
Pros and Cons of Long-Term Loans
Unlike Short term loans, Long-term loans also have advantages and disadvantages. The following listed pros and cons will help you evaluate various before committing to a long-term loan.
Pros of Long-Term Loan
Easy EMI options
Long-term loans generally benefit you in terms of monthly instalments. With digestible chunks of EMI, a person can be financially relaxed and quickly repay the loan without putting much stress over their pocket. Long-term loans are safe and gentle, considering the low money outflow.
Credit Score Builder
As a wise borrower, paying your monthly instalments occasionally helps you elevate your credit score to good heights. Long-term loans are a good way to give your credit score a nice boost. Remember, building a good credit score is a series of small, mindful steps to achieve an excellent score.
Flexibility of Loan Amount
In long-term loans, a borrower can go for a higher loan amount. If you are applying for a loan for five or more years, you can avail yourself of the maximum possible loan amount you can afford to repay.
Cons of Long-Term Loan
Time-consuming Loan Process
It takes a couple of days to complete the loan process. As a considerable loan amount will be provided to the borrower, lenders carefully go through all the necessary steps before approving the loan.
A Good Credit Score Requirement
It is a must to have a good credit history that can support easy approval of your long-term loan. A good credit score will reflect your financial stability and prove you can withstand the repayments as promised.
High Debt-to-Income Ratio
Lenders have set their criteria strictly for long-term loans, and your debt-to-income ratio must be high to qualify your loan application for a long-term personal loan. Your monthly income is essential for lenders when approving a long-term loan application from a borrower.
Stressful repayment period
These loans tend to keep a borrower under stress for long as they are long-term repayments. Until the loan is fully repaid, a borrower can develop a certain stress level.
Conclusion
As discussed in this blog, short-term and long-term loans have benefits and disadvantages under certain circumstances. Short-term loans are better when you need urgent financial backup and the required amount is small. In the same way, long-term loans have their benefits when you need a large amount of money.
If you need a short-term loan, Lenditt is here to offer customised, unsecured personal loans that suit the urgent needs of customers in Ontario, Canada. Our instant personal loan app gives you a smooth loan application process with zero paperwork.
When you need a quick loan, look no further! Lenditt has got your back!
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