Which Loan Tenure Should You Choose : Short Term or Long Term?

It has become easier to focus on personal loans to satisfy your urgent needs because they are easily available online as well as offline. They can be accessed without problems with minimal paperwork. Some banks offer pre-approved personal loans to employees. Interest rates differ from lender to lender depending on eligibility. You may receive funds between INR 25.000 and INR 10.000.000 lakhs depending on the credit ratings. Many new-age lenders sell their creditors stability in servicing with limited to no foreclosure charges.

See also our recommendation on how short term loan help in an emergency, Complete Guide to Student LoanPersonal Loan, and Complete Guide to Gold Loan.

What different loan tenures can you avail?

We will split the loans into two categories based on the duration of the loan. Let us explain in depth their features:

Short-term loans:

These loans come with a repayment period of 24 months or less. These loans work great for those trying to get a small amount of immediate income. These are unsecured loans that do not allow any collateral to be invested. Such loans are usually disbursed with a minimum of paperwork. You can conveniently access a short-term personal loan digitally from any leading financial lender. Since the tenure of the loan is less, the rate of interest may be higher.

How a Short-Term Personal Loan Works

Unlike a normal personal loan, where you usually pay off over several years, a short-term loan is expected to be paid within a year, or even only a few weeks depending on the borrower. The type of personal short-term loan you get can depend on your credit ratings, cibil score, and the creditor you select. Most of them work like this:

  • You apply for a loan with an online or storefront lender
  • To evaluate your financial history, the lender does a credit check or looks through your documents
  • The lender approves your short term loan request if your credit score is good
  • Within 24 hours of approving the loan application, the creditor would usually transfer the money to your bank account

Long-term loans:

Such loans come with a payment duration of 24-60 months in the case of personal loans. For certain forms of loans, the term may be as large as 30 years (home loans). These investments are ideally suitable to satisfy the long-term needs and higher value requirements. They may or may not need a pledge to protect, based on the discretion of the lender. As such, the interest rate of long-term loans is cheaper than that of short-term loans, so you should seek to obtain a higher interest rate for long-term loans with the lender.

How a Long-Term Personal Loan Works

A type of loan that is paid over a longer period of more than 3 years is known as a long-term loan. This time period will be anywhere from 3 to 30 years. Car loans, house loans, and certain personal loans are forms of long-term loans. Long-term loans may be used to satisfy certain commercial needs, such as the purchase of equipment or some personal needs, such as the ownership of a house.

Long-term loans are the most common type of credit in the financial sector. With the introduction of technology and fast banking, home loans and car loans have become a prevalent method of lending. These loans usually give a substantial portion of the debt and are thus stretched over a significant duration of the repayment period.

Long-term loan features can differ considerably based on the reason for lending. Long-term loans almost often give customers a pre-payment option such that people who want to pay off their debts earlier than the stipulated timeframe will not have to pay continuously over long periods of time.

What are the differences between long-term and short-term loans?

All forms of loans have advantages and disadvantages of their own. Your specific requirements will help you determine which form of loan is best suited to your needs. Below is a description of the two forms of loans. You will use this knowledge to determine the kind of funding you want. Identify your needs, plan a budget, evaluate the items available, and then zero in on your loan.


Factors Short-term loan Long-term loan
Tenure Such loans have a duration of fewer than or equal to 24 months. These loans have a period of more than 24 months. The duration of a personal loan can range from 24 months to 60 months.
Interest rate Such loans can come at a higher interest rate because the period is shorter. These loans offer a lower interest cost because the debt is extended over a longer period of time.
Documentation The documentation is minimal. Across the case of long-term loans, the lender can request additional documents
Collateral No security or collateral is required. If the lender is not convinced of your ability to repay the loan, you may be asked to provide a collateral or a guarantor as a security against your loan.
Specific needs Short-term loans are suited to cover the short-term needs of a lesser amount. Long-term loans are suited to meet your long-term needs which involve a huge amount.
Accessibility Short-term loans are easily accessible online. You can obtain the funds in 24-36 hours. These loans are accessible online as well as in banks.
EMI Amount Short-term loans have higher EMIs because the repayment tenure is less than 24 months. Here the installments are spread over a number of months, so the EMI amount payable each month is lower.
Restrictions on fund usage There is no restriction on where you can use the borrowed money. You can use the funds and where you like. No restriction on the usage of funds.

Which loan should you choose?

In considering short-term loans, the overall amount of interest charged is lower than the number of long-term loans. Therefore, if you are looking to finance your requirements at a cheaper interest rate and will pay higher EMI, go for a short-term loan because you end up paying less than a long-term loan.

When you have a restriction on the monthly repayment, you will apply for long-term loans to reduce the EMI period.

When you are paying for a small amount, then short-term loans are suitable, but if the financing demand is high, then long-term loans are more suitable.

Long-term loans are best suited to financial history because the loan is extended over a long period of time, allowing EMIs affordable to pay. Timely serviced loans have a positive effect on credit scores.

Bottom Line:

There are many financing instruments available on the market, each with different features and benefits. It is also important that you chose carefully, based on the need for and affordability of the loan.

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