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Short term loans vs long term loans
Short Term Loans vs.
Long Term Loans

Short term loans are generally classified as loans which last for approximately less than three years. It is surprisingly difficult to find lenders who are willing to lend money to borrowers who need cash for emergencies or to tide them over for shorter periods. Most lenders generally prefer to offer you a loan payable over three or more years as they can make more money out of you over a longer time frame. However, if you shop around, you will be able to find ways to acquire short term loans provided you are confident that you can afford the regular repayments.

Before taking out any short term loans, ask yourself these basic questions:

  • How much do you really need? Try to keep this to a minimum amount.

  • Do you actually need it in cash? Or can you pay for it by credit card?

  • How long do you need to borrow for?

The main problem with short term loans, compared top long term loans, is that you will have to pay large sums of interest. Some lenders even impose additional charges such as transfer fees on short term loans.

What type of short term loans are available?

Most of us are familiar with long term loans including mortgages, car loans, business loans, student loans, career development loans, and even home improvement loans, and wedding loans.

With short term loans, you essentially have two main ways of borrowing:

  • A loan to cover larger purchases

  • Credit cards or overdrafts to cover more immediate needs

If you choose the first option, the most common short-term loans are payday loans.

Payday loans are essentially cash advance loans. You can normally secure anything from $100 -$1500. Most lenders require you to repay the amount borrowed in one to four weeks. Payday loans are the ideal solution to cover any unexpected emergencies such as car or home repairs or an urgent medical bill. This is an attractive short term loan alternative because lenders do not carry out credit checks and you can get your hands on the cash on the same day. However, most lenders impose a few conditions as follows:

  • You must live in the country and be at least 18 years old

  • You can be a tenant or homeowner

  • You will need a regular monthly income

  • You must have an active current account and a debit card

Flexible loans are another type of short term loan. This allows you to borrow money on similar terms as a standard loan, but you can repay more quickly and without incurring penalties. Flexible loans offer up to $25,000 depending on your credit history. The typical loan term is approximately 12 months.

Bridging loans are another form of short term loans only applicable to homebuyers who cannot sell their existing home in time to make an offer on the home they want to purchase.

You can also try the following ways to obtain a short term loan:

  • Approach your employer for a pay advance

  • Approach a credit union

  • Approach family and friends

  • Arrange a pawnshop loan where you use items of jewellery or other assets as security

  • Arrange a car title loan where you use your car as collateral

The second main short term option is to borrow on your credit cards or arrange an overdraft with your bank or building society. These options offer better value, especially if you only need to borrow a small amount, as you could take advantage of credit cards or overdraft facilities which offer an initial interest-free period. However, be sure to repay your short term loan in full before this initial period expires.

Also consider the fact that even though certain credit cards have high interest rates, they can sometimes be cheaper than some short term loans!

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