Long Term vs. Short Term Loans

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What Are Short-Term and Long-Term Loans?

Short-term and long-term loans may refer to the time period in which a loan is paid back. Short term loans are generally to be repaid within a few months or a year or so. Long-term loan repayments can last for a few years up to several years (such as 10-15) years.

Short-term loans are generally associated with a need for quick money in small amounts. Examples of these are cash advance loans and loans derived from peer-to-peer lending. Long-term loans are generally required for larger amounts or for dealing with bigger transactions such as a home purchase loan.

Some loans can either be short term loans or long terms loans, or somewhere in-between. An example of this is with car loans, which can either be for larger amounts or smaller amounts depending on the arrangement.

How Are Short-Term and Long-Term Loans Different?

As mentioned, one of the main differences between short term and long term loans is the amount issued. A general rule of thumb is that the higher the loan amount, the longer it will take to repay it (though there may be some exceptions).

Another difference is that it may be easier to obtain loan approval for short-term loans. Short-term lenders might not require as stringent background credit checks as long term lenders. For instance, a mortgage loan might be associated with a very thorough and sometimes demanding risk analysis process before the loan gets approved. In comparison, some short-term loans can almost be obtained on-the-spot.

Lastly, short-term loans tend to have higher, less flexible interest rate options. 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).

How Are They Similar?

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. Regardless of how long the pay terms are to last, almost all loans present the borrower with options of either paying the loan back in lump sum or in periodic payments. Most borrowers opt for periodic payments so they can spread out their finances on a weekly or monthly basis.

Lastly, both short-term and long term loans may be susceptible to similar legal issues like loan fraud, defaults, and criminal violations (such as tax-evasion issues). These types of issues may sometimes require legal action in order to fully resolve the conflict.

Do I Need a Lawyer for Help with a Loan Issue?

Long-term and short-term loans can be helpful when it comes to reaching a particular financial goal. You may wish to hire a qualified lawyer if you need help with a loan of any type. Your attorney can help research your options and explain which type of loan might be best for your situation. Also, if you need to file a lawsuit or make an appearance in court, your attorney can be the one to represent you during those meetings.

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Last Modified: 02-05-2015 10:55 AM PST

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