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Some aspects of a short term loan are obvious. They are repaid over less time than a long term loan, for instance! But what other factors make short term loans different from longer term loans? We’ve explored these factors a little more below. But the simple answer is that for the most part, both types of loan are viewed the same way by lenders and financial companies.
Defining a short term loan is actually more difficult than you might think. For example, what makes a ‘short term loan’ short term? A payday loan is a type of short term loan, which can be repaid after a few days. But instalment loans, which are also in the same category, can be paid back over the course of several months, or even years.
Perhaps the biggest difference between short and long term loans is ironically not the length, but the amount you borrow. Longer term loans include things like mortgages, which are some of the biggest loans you can get, and large bank loans. Short term loans tend to be for smaller amounts – between a few hundred and thousand pounds.
And on your credit file, most lenders view short term loans and longer loans the same way. They are only concerned with how you manage your money, and are making your due repayments on time, not with the type of loan you have taken out.
While there’s no easy way to differentiate between short term and long term loans in general, the types of loans available in each category are more easily defined. So what options are available, and why might people choose them?
There are two main advantages to short term loans over long term loans – they are more accessible, and more flexible. In terms of flexibility, unlike a long term loan, where there is usually a high minimum limit of what you can borrow, and often early repayment fees, a short term loan allows you to choose exactly how much you want to borrow. You can also decide how long you want to borrow for, and the repayment dates. And they almost never charge a fee for early repayment.
When it comes to accessibility and being accepted for a short term loan, for the most part, your credit score is less important than factors like your employment history and your monthly expenditure. With long term loans, as the loan amounts are usually higher, the risk can be higher for the lender. They therefore put a lot of weight on your credit file and whether you have a near spotless history of paying loans and other forms of credit back on time.
Short term lenders understand that sometimes things can happen outside of your control. You may lose your job, or have to take a few weeks off from work due to illness. In these types of circumstances, you may fall behind in your credit commitments. And as such details are recorded on your credit report for up to six years, one period of financial difficulty can impact your chances of taking out loans for a considerable amount of time.
Short term lenders try not to focus on your financial history, but your financial present. As long as you’re able to make the due repayments without putting yourself into any difficulty, you should be able to take out a short term loan.
So if you’re looking for a short term loan to cover an unexpected cost, My Financial Broker can help! We can put you in touch with the best lender to suit your needs, and most likely to approve your loan application. Our services are completely free too – simply complete our short and simple application for a no obligation quote!