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There are different types of loans available to people seeking financial assistance. The loans can be categorized based on various criteria and factors. One way of categorizing loans is based on their duration. Based on this classification criteria there are short term, medium term loans and long term loans. Short term loans have a brief maturity date usually ranging from a couple of days, weeks or months. Short terms loans are loans that have to be paid within one year. Medium term loans last for about one to five years, while long term loans such as mortgages last for above five years.
Loans can also be categorized based on the presence or absence of security or collateral. Based on these criteria here are secured and unsecured loans. Secured loans require that a form of security is needed. Secure loans are less risky for lenders. This is because they can always fall back to the security if the borrower fails to pay. Secured loans are thus cheaper. However, a lot of people lack the required security to access loans when they need it. They usually have to fall back to unsecured loans that do not require any form of collateral or security. Unsecured loans are however more expensive as they pose expose the lender to more risks of default.
The two main examples of secured loans are mortgages, where your home acts as the collateral, and car finance agreements, where your vehicle is the security against the loan.
If you’re looking for a loan, you can choose between long term and short term loans. Banks, mortgage house and other standard financial institutions are the usual sources of long term loans, while payday and cash advance firms offer short term loans. Here is some basic long term vs. short term loans information to help you understand the difference between the two and make informed choices.
Long term loans have longer maturity dates. Payday and cash advance loans, on the other hand, usually last for about 14 to 30 days. With long term loans, the lender stretches the amount to be repaid over a longer period of time. With short term loans, the borrower doesn’t have this opportunity but has far less time to repay the loan.
Short term loans involve relatively lesser sums of money compared to long term loans. The lender is thus willing to advance the cash without checking the credit rating of the borrower. Short term loans are thus easier to qualify for and the application to disbursement process is thus faster. Short term loans are thus a great opportunity for people with bad or low credit score who still want to access loans.
A higher percentage of long term loans are secured loans warranting the provision of a security or collateral before the loan application can be approved. On the other hand, a higher percentage of short term loans are unsecured loans that do not require any form of security or collateral.