Short Term Loan vs. Long Term LoanReading Time: 3 minutes
When considering applying for a loan, you most likely will focus mostly on the amount you intend to borrow. This is pretty understandable since not borrowing enough may cause you to apply for another loan sooner than you may want to. On the other hand, borrowing too much may put you at risk of not being able to pay back the loan on time.
However, the length of your loan term should be as important when you’re considering applying for a business loan. Choosing between short-term loans and long-term loans can be a tricky task as it can affect everything from how much money you can borrow to how much interest you’ll pay. While the most obvious difference between both classes of loans is the length of their terms, there are a number of less obvious differences between them as well: Their ease of approval, loan amounts, and interest rates may vary largely, too.
Read on to learn the significant differences between short term loans and long-term loans.
- Length of Repayment Period
The primary difference between a long-term loan and a short-term loan is the length of their respective repayment periods. Short-term loans are typically pretty cut and dry. They are any loans you’ll need to repay within one month to 3 months. In contrast, long-term loans are required to be repaid during longer periods (6 months – 18 months).
- Ease of Approval
If you’re urgently in need of funds, you are better off applying for a short-term loan as it typically allows you to apply and receive your loan in as little as 24 hours. This is almost an impossibility when it comes to long-term loans, which are more challenging to get approved. When we extend large amounts of money over a long period as loans, we want to be absolutely sure that the money is dispensed to only borrowers who will repay in full and on time. Clearly, only a handful of businesses/individuals meet such requirements, which makes it more difficult for us to approve most long-term requests.
- Loan Amount
To receive a long-term loan, you may need to apply for a sizable amount of money. Lower amounts, on the other hand, are usually given to short-term loan applicants. If you’re looking to apply for loan amounts above #1 million, applying for a long-term loan, maybe the better option.
- Interest Rates
The longer your loan has a balance, the higher the interest on the money you borrowed. In short, taking a long-term loan means you will have to pay more in interest. As such, taking out a long-term loan for a small amount is an uneconomical thing to do when considering the cost of the long-term interest charges.
Which is better?
Deciding between short-term loans and long-term loans hinges on your specific needs. For most MSMEs, a short-term loan will likely be more suitable, especially if you’re a startup that doesn’t have years’ worth of profitability and financial stability that risk-averse, long-term lenders desire in their borrowers.
However, sometimes long-term financing may be necessary if you’re looking to make a significant investment, such as building a new office space from the ground up. Either way, it is important to work with a lender who is in tune with your business’s needs and challenges. At KiaKia, we understand that while you may prefer a loan type to another, your choice may necessarily not be the best option for your business at a specific time. This is why we offer our customers customized loan programs that align with individual needs rather than a one-size-fits-all kind of loan. Get across to our customer service agents in any of our online platforms or simply call the numbers below for guidance: 08092245588, 09055111140 OR 08093078377.