Short term and long term loans
- Thread starter Kevin M M
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eldavis
Guest
Like as you have said, the major difference between short term loans and long term loans is the time frame, hence it's name. Another difference is that short term loans is most associated with getting quick money, when you quickly need quick amount of money in small amounts, you can easily go for a short term loan. While long term loans are mostly used for larger amount of money.
Kevin M M
New member
Thanks for the clear distinction between the two
Good-Guy
VIP Contributor
I think that there could be several differences between long-term loans and short-term loans. For example, short-term loans might be suitable for students who tend to take those loans for a specified period of time their term of course starts and ends. Short-term loans might also be for people who buy products on credit terms. In short, people who deal in short-term financial settings might be eligible for a short-term loans. I am trying to say that short-term loans is for a specified category only. On the other hand, long-term loans might involve a huge sum of money unlike short-term loans. Such kind of loans are best for big businessmen who tend to borrow money for big business projects. To summarize it all, short-term loans and long terms loans are for different categories of people.
goodmoneygoodlife
New member
Short term loans generally have much higher interest due to risk. Think 'hard money' in real estate.
For example, you run a real estate syndication and you want to do some construction (you want to build an apartment building and sell it). You want a cheap loan from the bank, but nothing's been built yet so the bank doesn't want to give you money because it's too risky. So you:
1. Get a short-term loan from real estate lenders. You borrow $10 million at 10% APR.
2. You finish your construction in 3 months.
3. You go back to the bank and say 'hey I've finished building this, please give me a longer-term/lower interest rate loan'. They say yes and give you $10 million and 3.25% APR.
4. You pay back the $10 million principal to your hard money / real estate lender.
5. Now instead of being stuck with a 10% loan, you have a 3.25% loan that also lasts longer (and gives you time to sell the property).
Basically short-term loans are shorter in repayment time but also generally is used for much higher risk situations, and so the lender has to command a much higher % APR.
For example, you run a real estate syndication and you want to do some construction (you want to build an apartment building and sell it). You want a cheap loan from the bank, but nothing's been built yet so the bank doesn't want to give you money because it's too risky. So you:
1. Get a short-term loan from real estate lenders. You borrow $10 million at 10% APR.
2. You finish your construction in 3 months.
3. You go back to the bank and say 'hey I've finished building this, please give me a longer-term/lower interest rate loan'. They say yes and give you $10 million and 3.25% APR.
4. You pay back the $10 million principal to your hard money / real estate lender.
5. Now instead of being stuck with a 10% loan, you have a 3.25% loan that also lasts longer (and gives you time to sell the property).
Basically short-term loans are shorter in repayment time but also generally is used for much higher risk situations, and so the lender has to command a much higher % APR.
btaliat
VIP Contributor
The aim of the loanee and what the loan what to be used for will determine whether it is a long or short term one. If the loan is aiming at solving immediate issues and the repayment won't take more than 5 years, then it can be termed short loan. Majorly most big business owners always aim at obtaining long term loans which will ensure proper expansion of their businesses and ensure the term of repayment favours the loanee.
Mellorando
Banned
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 loans are generally required for larger amounts or for dealing with bigger transactions such as a home purchase loan. Typically, long-term loans are considered more desirable than short-term loans: You'll get a larger loan amount, a lower interest rate, and more time to pay off your loan than its short-term counterpart. Short-term financing is usually aligned with a company's operational needs. It provides shorter maturities (3-5 years) than long-term financing, which makes it better-suited for fluctuations in working capital and other ongoing operational expenses.
With all else equal, most types of long-term loans are riskier than short-term loans for lenders. This is because even established businesses could fall on hard times during their repayment period. For instance, many successful businesses have faced financial difficulties due to the COVID-19 pandemic. 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).
With all else equal, most types of long-term loans are riskier than short-term loans for lenders. This is because even established businesses could fall on hard times during their repayment period. For instance, many successful businesses have faced financial difficulties due to the COVID-19 pandemic. 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).
Caramelle
Active member
Short-term loans are generally used by businesses to cover temporary liquidity requirements or emergencies. For example, a delay in the collection of its receivables because of widespread lockdowns during the pandemic will likely cause disruptions in its fund management. To solve this, the company may seek short-term loans that can be paid as soon as its collections return to normal or within a few months.
Long-term loans are commonly used to fund bigger projects such as plant expansion, acquisition of high-cost equipment, purchase of property, and acquisition of company vehicles. Because they are used to fund asset acquisition activities, their amounts are generally larger than short-term loans. The loan terms usually last for more than a year.
If you intend to borrow money, you have to be able to identify your need and find the type of loan that matches it. Once the need has been determined, you can create a list of potential sources and determine which among them provides the most favorable terms and conditions.
Long-term loans are commonly used to fund bigger projects such as plant expansion, acquisition of high-cost equipment, purchase of property, and acquisition of company vehicles. Because they are used to fund asset acquisition activities, their amounts are generally larger than short-term loans. The loan terms usually last for more than a year.
If you intend to borrow money, you have to be able to identify your need and find the type of loan that matches it. Once the need has been determined, you can create a list of potential sources and determine which among them provides the most favorable terms and conditions.
Abigael
Valued Contributor
In my understanding, short term loans are those which have a short repayment period. Apart from that, they also are given in small amounts but the interest rates could be high. They are mostly taken by people who want to satisfy an urgent need with the plan of paying back soon. As for long term loans, apart from having a longer period of repayment, they are also in large amounts. They may have specific repayment dates with an increase of interest when you skip a day of repayment. Those kind of loans are always given to more trustworthy people who won't default on their repayment.
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