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Short term and long term loans
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[QUOTE="goodmoneygoodlife, post: 203073, member: 64084"] Short term loans generally have much higher interest due to risk. Think 'hard money' in real estate. For example, you run a [URL='https://goodmoneygoodlife.com/best-real-estate-investment/']real estate syndication[/URL] 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. [/QUOTE]
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