In South Africa, we have different types of loans. But what are the differences between them? The time it takes to repay a loan may be divided into short-term or long-term loans. Short-term loans can be paid back in a matter of months, or even a year. Lenders that are long-term can repay their loans for several years, up to a maximum of 10-15 years.
Short-term loans are often associated with the need for small amounts of money. These include cash advance loans, loans obtained from peer-to–peer lending and loans that are short-term. Long-term loans are generally required for larger amounts or for dealing with bigger transactions such as a home purchase loan.
There are two options for loans: short-term loans and long-term loans. This is the case with car loans. These can be for greater or lesser amounts depending on the agreement.
What is the difference between short-term and long-term loans?
The amount of the loan is one of the major differences between short-term and long-term loans. The general rule is that the larger the loan amount, it will take longer to repay. However, there are exceptions.
Another difference is that it may be easier to obtain loan approval for short-term loans. Sometimes, short-term lenders may not require the same rigorous background credit checks as long-term lenders. A mortgage loan may require a thorough, sometimes difficult risk analysis before approval. Some short-term loans, however, can be applied for almost immediately.
Short-term loans have a higher interest rate, but are less flexible. This is to compensate for the fact that the repayment period will be shorter, and also to help prevent borrower default (many short term borrowers are have bad credit ratings).
What Are Their Similarities?
Short-term and long-term loans are similar in that all lenders must of course abide by all state and federal loan requirements and must obtain proper certification/licensing. No matter how long the terms of the loan, the borrower has the option of paying back the loan in lump sum or monthly payments. Many borrowers choose periodic payments to spread their finances over a week or month.