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How to Choose Between Long-Term and Short-Term Loans

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It is often said that money cannot buy happiness. While this is up for debate, what is undeniable is that money can at least buy you time. Time can be a real game-changer for your professional or personal plans when managed intelligently  – and that’s the kind of power you can get when you take the right kind of loan for your goal. In most countries today, it is, in theory, possible to choose between different term lengths for different loans.

A loan that is repaid over a short duration of time is called a short-term loan, while one that would be taken out over an extended period is called a long-term loan. While it may seem that they only differ in the terms of the length of time agreed upon to repay the loan, they both present other advantages as well. Which option would best match the situation you are looking to solve? This article will help you make that more clear with some in-depth explanations and words of advice.

Short-term loans

Though they may seem similar to payday loans, short-term loans are in fact longer. The former usually must be reimbursed in one lump sum in the timeframe of a month from the date the loan was taken, but short-term loans can be repaid in weekly or monthly installments over different time durations that start at 3 months and range up to a year. And while you would be liable for an additional fee or see a hike in interest rates if you miss a repayment on a payday loan, this is not the case with short-term loans, where you only pay what you have agreed upon at the onset. Any loan you take out will affect your credit score and credit rating, and it is your ability to manage your repayments that will determine whether your score is affected positively or negatively. 


Your rating will improve when you reimburse your loan according to the terms set out in your contract, and it will be downgraded if you fail to honor your commitments. You should, however, be aware that some companies might have a negative view of short-term and payday loans, though your score would not be affected, having that in your history could be detrimental. Although no damage is completely irreversible, low credit scores can be especially difficult to improve, especially if you’re currently in need of financial aid. You want to always make sure that you only take out a loan that you can repay in due time. 

Payday Loans

One type of short- term loan is the payday loan. When you take one of these out, you will be repaying it as soon as your paycheck hits your bank account. Because that is usually within the following month, these are very short-term loans and are designed to help those who would are in need of immediate liquidity in the event of an emergency to cover the extra costs and damages without leaving a dent in their budget. Today, you can apply to some of the best payday loans available in the UK from the comfort of your home online. You could even get approved in thirty minutes because these are considered to be lower-risk loans by the banks – you need to be employed when you apply, which (should be) a guarantee that you will indeed be receiving payment on a certain coming day of the coming month.

Bad Credit Loans

This brings us to bad credit loans, which are designed for those of us who have a credit score on the lower end of the scale. It’s a tricky way out of a vicious cycle, but a well-planned bad-credit loan can help get your credit score back on track (or so they say). Do watch out for exorbitant interest rates, as that will be the trap they’ll be waiting for you to fall into, so take time to conduct your research. 

Long-term loans

These loans can also sometimes go by other names, such as monthly installment loans, which is opposite to a payday loan. Long-term loans are usually taken out of a bank or another money lending institution, and allow you to borrow larger sums of capital over longer periods of time with lower interest rates, conditional to your monthly salary, your loans processing fees, and interest rate, and most of all, the terms and conditions of your contract. 

Before you apply for any loan, short or long term, it would be best for you to calculate how much you will need to borrow – a number that can reach up to six times your monthly salary. How you plan to reimburse the cash you were loaned is a critical factor to determine. If you are lucky enough to be able to afford to pay off your debt earlier than the terms required by the contract, there is even a chance that you might get a rebate on the repayment of the interest rate.


So, how do you choose? If you really have to break it down, in the end, everything really depends on your individual situation. So try to remember the following 2 main points:

  • To minimize the overall cost of the loan (including the interest rate you’ll be paying), it would be best to opt for a Short-term Loan.
  • To extend and maximize the amount you can borrow and bring down your monthly expenditures, then you would be advised to choose a long-term loan.


It’s always good to remind ourselves that we should consult an expert when we can afford to. If in doubt in any way, do not hesitate to seek counsel from someone who specializes in financial matters, such as a financial advisor, who will also be able to provide help with documents and paperwork. On top of that, they can provide a more objective and experienced assessment of your needs and where the solution might lie. This will help you get a better deal for yourself as well as buy you some peace of mind.