Short-Term Loans vs Long-Term Loans: Your Ultimate Guide to Making the Right Financial Choice

Nov 24, 2023
 |  1 min read

What are Short-Term Loans and Long-Term Loans?

A loan can help you address your immediate and long-term personal and business financial needs. Learning about different loan durations and how they affect financial planning can help you make the right decision. So, what are short-term loans and long-term loans?

Short-term and long-term loans are two borrowing options that differ mainly in repayment periods. Short-term loans are meant to be repaid relatively quickly, typically within a year or less. On the other hand, long-term loans have a more extended repayment period, usually beyond a year and sometimes extending to several years.

Short-term loans are temporary when you need money quickly to cover a small expense or an instant loan for a low salary. Long-term loans are commonly used for significant investments, like buying a house, starting a business, or funding a large project. They come with a much more extended repayment period.

The borrower is expected to repay the short-term loan, along with any interest or fees, in a short period, usually within a few months. Long-term loans are like a steady, long-haul commitment where you pay back a smaller portion over a much extended period.

How do Short-Term and Long-Term Loan Interest Rates Differ?

Be it any loan, the borrower has to pay interest, which is the extra amount of money paid back on top of the original loan amount. So, before selecting any loan type, it is essential to understand how do short-term and long-term loan interest rates differ and which is easier on the pockets.

Short-Term Loan Interest Rates: The interest rates for short-term loans are often higher. It's like paying a little extra fee for the convenience of getting money quickly and for a brief period.

Long-Term Loan Interest Rates: The interest rates for long-term loans are usually lower than short-term loans because you're borrowing a more significant amount and paying it back over a more extended period. It's a "discount" for committing to a more extended repayment plan.

What Are the Requirements for Short-Term and Long-Term Loans?

Short-term and long-term loans have different credit and documentation requirements. Assembling these documents in advance can help you quickly access a loan and have a seamless experience. Let’s learn about the documents you need for your short-term or long-term loan.

Short-Term Loans:

Valid ID: Lenders often ask for identification, like a driver's license, to verify your identity.

Income Proof: Lenders may request proof of a steady income to ensure you can repay the loan within the short term.

Bank Account: You should have an active bank account to deposit the loan amount and withdraw repayments.

Application Form: You must complete a simple form with your personal and financial information.

Age Requirement: You must be 18 to qualify for a short-term loan.

Credit Score: Some short-term loans may require a good credit score, while others may be accessible to individuals with lower credit scores.

Long-Term Loans:

Valid ID: You'll need identification, such as a driver's license, to confirm your identity.

Age Requirement: You must typically be 18 years old for long-term loans.

Credit Score: Long-term loans, especially for significant amounts like mortgages, require a good credit score.

Stable Income: Lenders want assurance that you have a steady income to make long-term payments. Employment history and pay receipts might be required.

Employment History: A steady employment history can strengthen your application, showing lenders that you have a reliable source of income.

Debt-to-Income Ratio: Lenders may assess your debt compared to your income to ensure you can manage additional debt.

Down Payment (for some loans): When it comes to big-ticket items like a home, you might need a down payment to secure a long-term loan.

You can now choose the correct loan type based on your financial needs. It is easy to avail 

of the same due to trustable platforms like mPokket. Apply for an instant loan online with the help of mPokket. Download the mPokket online loan app and register by following simple steps. You can instantly apply for short-term loans and use the funds for your financial needs.  

Gaurav Jalan

Gaurav Jalan is the Founder and CEO of mPokket, a digital lending platform serving underserved Indian youth. He leverages technology and experience to deliver cost-effective credit to marginalized populations. In his role, he provides strategic direction and oversees execution to fulfill mPokket's mission.