Both short-term and long-term loans are easily available in the UK market. Before applying for any one of them, you should be very clear about your financial requirement and repayment power. Your wrong choice may put you at higher-risk of more financial woes and debt.
Are you confused which loan you should prefer for your financial requirement? Let’s have a detailed look at the benefits and disadvantages of both short-term financing and long-term financing options:
What are the Advantages of Long-Term Loans?
A long-term loan is a kind of financing option where you borrow funds for a longer period. Both secured and unsecured lending options are available in the market. Before applying, you should know the benefits of long-duration debt.
No limit on Loan Amount:
Looking for a high-amount funding option? No need to worry. Apply for a long-term loan for availing a large amount of money on flexible monthly repayments. If you qualify, you can use the borrowed funds for any of your requirements, i.e. starting your new business, giving a complete makeover to your home, managing your wedding expenses and more.
Lower Interest Rates:
Due to their longer terms, the interest rates of the long-term loans are lower as compared to the short-term options. The final APR depends upon various factors i.e. collateral used to secure the debt or not, guarantors furnished or not, the credit score of the borrower, and tenure of the debt. It should be noted that the interest rate doesn’t vary and it is fixed during the complete tenure.
Improve your Credit Score:
As the finance term is longer, you get plenty of time to show your good repayment behaviour, which in turn improve your credit score. The lender sends your monthly repayment report to the credit bureaus in the UK and hence your credit score positively changes with each passing month. You can easily build a good score from zero.
Flexible Repayment Terms:
In the long-term loans, you have the freedom to repay as per tenure of your convenience. You can choose longer tenure if your repayment power is low and don’t want to take the extra financial burden. If your financial situation is good, then you can repay in high-value monthly repayments.
Fast Loan Approval:
Yes, you read it right! Nowadays, you get fast approvals on the applied long-term loans within 2 days to 5 days. Actually, it depends upon the type of lender. Traditional lenders in the UK take too much time, i.e. 7 days to 15 days. However, the online top lenders in the UK approve your long-duration funding requirement in maximum 5 days.
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What are the Disadvantages of Long-Term Loans?
No matter how much flexible or affordable are long-term financing options; there are certain drawbacks that all borrowers should know before applying with the lenders. Here are the disadvantages:
Collateral May be Required:
As the finance amount is quite high, many traditional and online lenders ask you to pledge your home or property for securing a long-term loan. It is quite risky, as you may lose your asset in case of the default. If you miss repayments for more than 3 months, then a lender can declare you defaulter and sell your asset to recover the given amount.
Sometimes Guarantors are Required:
Most of the traditional lenders and some online lenders don’t want to take risks and hence ask bad credit customers to get the application co-signed by the guarantors for availing long-term loans. Convincing people to give surety for availing a bad credit loan is quite tough. Moreover, if you are new to a place or a first-time borrower then people hesitate in giving surety.
You are in Debt for a Longer Time:
A longer loan tenure means you are opting yourself to be in debt for a longer time. Debt leads to various issues like depression and repayment stress. Nobody knows the future. Time keeps changing. If you lose your job and have no steady source of income, then repaying monthly repayment will be tough. Hence, you should have a solid repayment plan before availing a long-term loan.
Higher Interest Cost:
The total interest rate that you pay in 5 years of tenure is higher as compared to the total interest in 3 years. A long-term debt is indeed flexible, but costs you more if you opt longer loan terms. Therefore, choosing the best possible tenure should be your priority. Never choose a debt term without calculating the total cost.
Traditional Lenders take Too Much in giving Approval:
Unluckily, if you have chosen a traditional bank or a lender then you are going to live in a loan approval dilemma for more than 15 days. They take 15-20 days to approve an offline long-term funding option. Delayed approval can be problematic, if you are facing unavoidable financial crisis and you need quick funds to overcome it.
What are the Advantages of Short-Term Loans?
Our financial life is quite unpredictable. One day we are earning well and the second day we may go unemployed. Whatever is our employment status, we need funds to survive. One of the best solutions to overcome a sudden financial crisis is a guaranteed short-term loan. Here are the benefits:
- Fastest Approvals, Quick Money : Availing quick cash has become so easier in this Internet era. Most of the top online lenders in the UK approve short-term loan applications within 15-30 minutes of receiving them and disburse the required funds on the same day or within 3 working days. Therefore, the biggest advantage of a short-term finance is that you get quick money when you are in an emergency.
- No Collateral Required : More than 90 % online lenders don’t ask you to secure a short-term loan with your asset. Therefore, the complete borrowing experience is stress-free and convenient. Moreover, they don’t charge extra for their collateral-free service.
- No Guarantor is Required : The top online lenders in the UK are committed to offering you quick short-term loans without a guarantor. There is no need to plead people for giving surety. Just choose a reliable lending company to avail quick funds for overcoming your financial woes.
- Bad Credit Friendly : Are you worried about your bad credit history? No problem! Having a bad credit history is no more a critical issue. There are various guaranteed loans available for bad credit customers In the UK debt market. Choose the best deal to become a happy borrower.
- No Long Term Stress : There is no long-term commitment so you don’t need to worry about the future. Repaying monthly amount for a shorter period is easily manageable and you lead a happier life once you pay off the availed short-term funds.
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What are the Disadvantages of Short-Term Loans?
Short-term loans are highly popular among the UK population as there is no risk of losing the pledged asset.Moreover, even bad customers can easily avail such funding options. Let’s have a look at their cons:
Higher Interest Rate :
Due to the risk involved, lenders charge a higher interest rate on unsecured short-term options as compare to the secured long-term funding. Indeed, such financing solution is harmless, but it is available at a higher cost. You should avail a short-term debt only when there is an emergency and even friends & relatives don’t help you out.
Sometimes people apply for short-term loans even when they actually don’t need money. Such funding options are quick and can be easily availed, so some borrowers misuse them and increase unnecessary debt on their head. Then, they apply for another financing option for clearing the previous one and so on. It is a never-ending debt net.
Your Credit Score is at Risk:
People want to avail loans quickly, but when it comes to repayment, they are quite slow. Forget about going default, missing even a single repayment can have a bad impact on your credit score. Always make the monthly repayment before a due date. Late payment may lead to extra charges and score will be down.
Although most of the short term financing options are risk-free, but there are some scenarios when lenders need collateral for approving your financing applications. You can’t afford the risks on your home or car. Always, try to avail guaranteed loans without guarantor from reliable lending agencies only.
Unnecessary Penalties & Hidden Charges:
When you are short of funds, one quick solution that comes to your mind is a short-term loan. As you are in a hurry, you don’t go through the terms & conditions and later face the heat of unnecessary penalties and hidden charges. Always ask for the hidden fee before applying for any kind of financing solutions.
Both financing options have their own merits and demerits. If you need a large amount of money, then obviously you would choose long-term financing solutions and if you need small cash then you would opt for short-term financing options. Whichever is the case, you just need to learn a common thumb rule – Always make repayments on time!