If you are considering a loan, have you thought of which loan type would be best for you? A short term or long term loan?
A loan is a specified amount of money someone borrows with the intention of paying it back. Generally it’s over a said period of time and is paid back with interest. There are different types of loans falling into two major categories short and long-term.
And what would determine if taking out a short-term loan is better than taking a long-term loan is what’ your purpose for needing a loan.
Should you have an emergency and are in need of immediate cash in such an instance a short-term loan would be applicable. As for this type of situation you’d be able to get the cash quickly, whether should you need the cash for car repairs, taking a vacation, or other unexpected bills.
Unlike a long-term loan, you can get cash within 48 hours and there are no credit checks. The loans are generally up to R2000. This type of short-term loan is referred to as a Payday loans or a cash advance where you can even get the loan online from payday lenders. In which the payment comes from your bank account on your next pay date and it’s loans that are generally up to about three years.
Another popular short-term loan is a flexible loan. This is generally a credit based loan, of up to R25 000. The term is generally 12 months. However these types of short-term loans are at a higher interest rate than a long term loan. A lender will use the situation that you don’t have credit in order to offer the higher interest rate.
Therefore with a long-term loan it’s credit based. The better your credit score the better your interest rates will be. A long-term loan can be taken over an extended amount of time and can include any loan from student, wedding, start-up business and home improvement loans.
- Another benefit to a long-term loan is that they generally taken out through a bank or credit union, unlike a short-term loan.
- You have greater flexibility with payment options.
- They help establish credit.
Although with a long-term loan it can be a secure loan requiring a form of collateral or asset, like a title to your car or your home. Or an unsecured loan which has a higher interest rate as the lender has more at stake. Therefore you decide what’s best for your situation.