How to Choose Between a Short-Term Loan and a Long-Term Loan

Apr 13, 2021 12:42:42 PM Budget, emergency loan

Written by Spotloan

Short-term loans and long-term loans often serve different purposes. Short-term loans typically have a repayment period spanning from a few months to a year. On the other hand, long-term loans are often for much larger amounts and come with a multi-year repayment period. Outside of mortgage and business loans, long-term loans are rarely ideal. If you’re not sure which one you need, there are a few questions that can help you narrow down your choices. 

What’s Better for Me? A Short-Term Loan or a Long-Term Loan? 

What Loan Term Factors Alter the Payback Time? 

The payback period for a loan can vary drastically, depending on several different factors. Shorter payback periods are generally more desirable because they equate to less time spent owing money and accumulating interest. 

Mortgage loans tend to have payback periods in 15, 20, and 30-year increments. Auto loan repayment periods usually last three to five years. But when it comes to other loans, like emergency personal loans, having such a long repayment period often does more harm than good. The monthly payment and interest are two factors that alter your payback time. 

Unlike many other loan offerings, the repayment period for a Spotloan is up to you. You can pay off your loan in two months, four months, or even up to ten months. This gives you the perfect balance, offering time to catch up, manage your bi-weekly or monthly payments, and receive flexible funding.

With a long-term loan, the principal payment each month is usually lower, because the total amount borrowed is spread out over a longer period. This can make a longer-term loan tempting at first glance, but long-term loans often result in additional interest charges, costing more in the long-run over the life of the loan. Your initial purchase price doesn’t change, but the amount that you spend by the end of the loan period does. 

How Long Do You Need to Pay Back Your Loan?

The first thing to ask yourself when shopping for a personal loan is how long do I need to pay back my loan? If you are looking for a loan to cover an emergency or an unexpected expense, a short-term loan should suffice. Here are a few examples of what short-term borrowers use their loans for: 

  • An emergency car repair or replacement 
  • An emergency home repair, like a water heater replacement or a plumbing issue
  • Unexpected medical expenses 
  • An overdue utility, mortgage, or rent payment

Short-term loans are viable solutions to alleviate sudden temporary financial trouble. 

Which Type of Interest Rate Remains the Same Throughout the Length of the Loan?

Another factor to consider in your search for a personal loan is whether or not the interest rate remains the same. A loan that comes with an adjustable, floating, or variable interest rate can be risky because the interest rate can fluctuate with the market and other factors. 

Of course, there is always the chance that the interest rate will go down as the market fluctuates, but it’s rarely worth the risk. The better choice is a fixed-rate loan so that the lender can’t change your rate on a whim and make it harder for you to repay your loan. 

What are the Advantages of Short-Term Loans?

Spotloan’s short-term loan allow you to access the funds you need and spend a shorter amount of time accruing interest. Since Spotloans don’t require collateral and come with an incredibly fast funding time, it can be more convenient than long-term options, especially if you don’t have another way to get the money. 

Short-term personal loans are also often ideal for those who have lower credit scores or savings. But that doesn’t mean that Spotloans are right for everyone. Although they are ideal for many people, as suggested above, we highly recommend exhausting alternative options before applying for a Spotloan. 

Banks, credit cards, friends, and family members may be able to offer you better loan terms, so we encourage you to check with them before applying. But if you find that Spotloan is currently your best option, we are available online 24 hours a day and we fund new loans Monday through Friday. 

You can get started today with our convenient online loan application