Long-term and short-term loans are both excellent options available for you if you need cash. Each of these options has pros and cons, depending on your current situation and why you need the money.
If you need access to quick cash to pay for an unexpected medical expense or some other form of emergency, continue reading below. In this brief short term vs. long term loan guide, we will compare those two options, explain how they work, and provide you with a contact to reach out to for more information.
What Is a Short Term Loan?
Short term loans are best for those who are in need of fast cash to pay for an emergency expense. For example, some people get short term loans because they need the money to fix a car or if an unexpected bill comes up. It is important to note that most short-term loans come with higher interest rates than long term loans, so be sure only to take out the loan if you know you can make those payments back and on time.
Short Term Loans for Bad Credit
Several short term loans are available for those with bad credit or little to no credit. For example, there are title loans and payday loans. With a title loan, you exchange your vehicle’s title in exchange for a large sum of money.
You don’t have to turn in your vehicle to the lender; they just need possession of your title. In the event that you default on your loan, the lender will take your vehicle and sell it to recoup the money they lent you.
Payday Loans
Short term payday loans are meant to help you until your next payday. These loans typically last only a week or two, depending on when your next payday falls. Although this is a great way to get cash fast, it is not ideal to take if you know you won’t be able to make up the payment on your next payday.
When you take on this loan, be sure only to take what you know you can repay. In addition to the amount of money you borrow, you must also consider any interest rates or fees added to the loan.
Where to Get Short Term Loan
There are several different ways to get a short term loan. The most popular way to get a short term loan is online, but there are some lenders available in person that you can visit.
When looking for a short term loan lender, be sure to do your research on the company. There are a lot of lenders that practice predatory lending, which means they impose unfair terms and conditions intended to keep you in debt.
Benefits of Short Term Loans
One of the most significant benefits of receiving a short term loan is the rapid approval timeline. The approval process for getting a short term loan is relatively quick. In general, all you have to submit is an application with your information and proof of employment before a lender considers your loan.
Fast Access to Funds
Most lenders approve loans within five to ten minutes, whereas others may need a day or two to review the application. Once they approve your loan, you can expect to receive your funds either the same day or within 24 to 48 hours business hours. This comes in handy if you need the money quickly to cover an unexpected expense or an emergency.
Collateral Not Required
In general, you don’t need to put down any collateral to secure a short term loan. Unless you apply for a title loan, you won’t necessarily need to put down any collateral. Most lenders approve loans based on your credit or based on your income
Lower Credit Scores Accepted
Most lenders who provide short term loans work with clients who have bad or little to no credit. Keep in mind that even if you get approved for the loan, you may not have as favorable terms as someone applying for the same loan with better credit.
Disadvantages of Short-Term Loans
Although short term loans come with several different benefits, they also have a few disadvantages you should be aware of. For example, these loans tend to come with higher than average interest rates.
This is mainly because the lender takes on more risk when they work with clients with little to no credit. They also take on more risk by providing you with a loan with a shorter repayment period.
May Carry Fees and Charges
Short term lenders have the right to create their own underwriting requirements, and they can charge whatever fees they want. If you sign the document taking on the loan, you agree with their terms and conditions, including paying additional charges and fees.
There are some lenders who charge origination fees which is a fee you pay to process the loan. Be sure to read over the fees and charges before you sign any loan.
What Is a Long-Term Loan?
A loan term loan is what most clients consider to be a personal loan that provides you with longer repayment terms. Most long-term loans come from banks or credit unions.
Most lenders will approve you as long as you have a steady income, a decent credit score, and can afford to make the payments. Depending on your credit score and your income, some lenders let you borrow up to $50,000 or more. The interest rates for these loans vary based on your credit.
Different Types of Long Term Loans
As mentioned earlier, most people consider long term loans as personal loans. Personal loans are typically available to clients with stronger credit profiles. The better your credit, the more likely you will receive favorable terms and conditions. You can get a personal loan from a bank, credit union, or even a supermarket.
Peer-To-Peer Loan
You can use several different peer-to-peer outlets to secure a personal loan. Peer-to-peer lending platforms usually consist of a group of individuals that provide a certain amount of cash to whoever applies. As long as you meet their requirements and you agree to their repayment terms, they are relatively easy to receive an application for.
Advantages of Long Term Loans
One of the most significant advantages of getting a long term loan is the type of capital you have access to. For example, you can only borrow a small amount of money with short term loans.
Depending on the lender, the most they can offer is about $10,000. With long-term loans, you can borrow up to $60,000 to $70,000 or more, depending on your income and credit profile.
Better Interest Rates
When you get a long term loan, you most likely have better favorable terms. Most long term loans are reserved for those with better credit history than those who apply for short term loans. As we mentioned earlier, the better your credit, the lower your interest rate.
Disadvantages of Long Term Loans
Although you can get higher loan amounts with long term loans, a few disadvantages come with this loan. For example, you are committed to this debt for a more extended period of time with a long term loan.
Increased Payments over Time
In addition to being committed to a debt for a long time, you also pay more over the term of the loan. Although short term loans have higher interest rates, you may end up paying more with a long term loan since you’re committed to the loan longer.
How to Apply for a Short Term Loan
If you are looking for a short term loan, there are a few things you should be aware of. For example, before applying for this type of loan, you must meet a few basic requirements.
Requirements for a short term loan:
- Be at least 18 years of age
- Have an active bank account, i.e., a checking account
- State issued ID
- Proof of income
When showing the lender your proof of income, you can provide them with copies of your paystubs. You can also provide them with your W-2. Each lender has its own requirements for what they need for proof of income.
Some may ask for you to show the direct deposits made into your bank account from your job if you opt for direct deposit. If you receive checks, be sure to keep the check stub as proof.
Compare Lenders
As mentioned earlier, there are several ways you can get a short term loan. You can either get a short term loan from an online lender or from a lender in your neighborhood. You most likely have more options online than you would in your neighborhood.
Once you find a few lenders to work with, make sure you compare their loan terms before you make your final decision. Several different lenders allow you to pre-qualify for a loan.
Pre-qualifications only conduct soft pulls, which don’t directly affect your credit. It is important to note that your rate may change when the lender performs a hard pull if you decide to move forward with them.
Apply for the Loan
Once you find a lender that you want to work with, go ahead and send in your application. On the application, you will need to put information about yourself before they will consider you.
Information you need to put on the application:
- Place of employment
- Contact information for your employer
- Your personal contact information
- How much you make each year
- Other sources of income
In addition to this information, you may need to send the lender proof of your income. Depending on your lender, you may need to bring this information in person, or you can just send them this information via their secure website.
Review Your Terms and Conditions
Most lenders approve loans within a few minutes or a few hours. When you receive your approval, be sure to look over the terms and conditions before you take on the loan.
You will want to completely understand how much you pay back each month and how much you will pay in interest. Keep in mind that most monthly payments go towards interest, not principal. If you can, pay back more each month to reduce the time you have to repay the loan.
Before you make those additional payments, read the terms of your loan to see if there are any clauses about prepayment payments. Some lenders charge you fees if you repay the loan sooner than expected.
Sign for the Loan
So long as you agree with the terms and conditions of your new loan, you can sign and accept the loan. At this point, the lender will ask you for your direct deposit information so they can transfer you the funds.
Most lenders can get the money transferred within one to two business days, but the time you receive the money depends on your bank. Some banks will hold the funds for a day or two before they release them. Make sure to call your bank to let them know that you’re expecting the transfer so they can release it within a reasonable time.
Best Short Term Loans Online
Regardless if you need fast cash to take care of an emergency expense or to take care of an unexpected bill, there are several different online lenders available for you to choose from. Be sure to compare lenders before making the final decision to ensure you get the best rate possible.
To see what rates and loan amounts you qualify for, submit your information today! Our team is here to answer any questions or concerns you may have.