All about Long & Short Term Loan?

Long term loan:

Long term loan are defined as loans whose period extends for more than three years. But, long term loans sometimes extend for more than ten years and can be as long as twenty years. A long term loan is backed by a security. A security for a long term loan can be a property; equipment or some other asset (Home Loan, Loan against Property), but there has to be something which secures a long term loan. The rate of interest of a long term has to be fixed according to magnitude of the loan amount, length of repayment period, record of a regular income source and security assessment is done before disbursing a loan.

What are the advantages of a long term loan?

Most important aspect of long term loan is the cheaper rate at which they are available compared to other loan.

Long term loan is meant to borrow a larger amount.

Drawbacks of a long term loan

Interest rate fluctuations are the biggest concern for a borrower.

The overall interest paid in case of a long term loan is much higher.

Short term loan:

Short term loan are meant for shorter repayment duration and are not meant for long term obligation. These loans are meant for a smaller amount as you need to pay it quickly. The loans are meant for educational expenses, Home Loan, auto repairs and clearing smaller debts.

What are the advantages of a short term loan?

A short term loan is not backed by a security.

It may just take hours or some days to get a short term loan.

A minimum paper work is required for short term loan.

A short term loan meets up your immediate financial expenses.

Disadvantages of short term loan

Short term loan are usually expensive

Higher rate of interests

A detailed introspection of credit history of the borrower

Short term loan are meant for smaller amount.

[Source: http://loanwalle.com/blog/all-about-long-short-term-loan/]