We try not to state the obvious too often here at CashCompare, and the definition of the term “short term loan” might seem more than obvious: an amount of borrowed money that needs to be paid back over a relatively short period of time.
But what do we mean by “short period of time” when it comes to loans, and what are the pertinent differences between a short-term loan and a long-term one? Even more crucially, what implications will all of this have for the kind of loan that you might decide to take out?
To reiterate what we said above, a short-term loan entails money being borrowed – a personal loan, in other words – that must be repaid over a short timeframe. Beyond that, there isn’t really a specific definition of the term “short-term loan”. It is often taken to mean a loan that has to be paid back over a period of up to one year. However, a loan could conceivably be slightly longer than this, and still be referred to as a “short-term loan”.
CashCompare is a credit broker that helps to arrange emergency short term loans, drawing upon an extensive panel of represented lenders. But it is also perfectly possible to use our no-obligation quote request form to discover your options for a loan that would need to be paid back over 24 months (two years), or perhaps an even longer timeframe than that. CashCompare is a credit broker authorized and regulated by the Financial Conduct Authority, dedicated to helping you find the best loan option available.
And as you will also see from looking at our form, we enable prospective borrowers to consider their options for short-term loans of as little as £100, or as much as £5,000.
Be aware that all loans carry risks if not repaid on time. Short-term loans often have higher interest rates, which can lead to greater debt if not managed responsibly.
A long-term loan, on the other hand, typically involves a larger amount of money, which the borrower agrees to repay over a longer period of time.
You might expect a broker that focuses on emergency short-term loans, such as ourselves here at CashCompare, to suggest you take out a short-term loan. But of course, the reality is that the most appropriate choice for you will hinge on a range of factors.
Short-term loans are often sought in genuinely short-term “emergency” circumstances, such as if someone’s car breaks down and needs to be repaired at short notice, in order for them to be able to do their vital daily commute. In that situation, the driver may apply for a short-term loan if they do not have the money immediately available to pay for repairs.
We urge you to borrow responsibly and only take out a loan if you are confident you can meet the repayment terms.
Long-term loans, on the other hand, tend to be taken out for needs or aspirations of a more long-term nature (such as, to repeat what we said above, buying a brand new car that is likely to continue to be used for years after the loan has been paid off).
Bear in mind, too, that a loan that needs to be paid back over a longer timeframe could present a higher risk of your financial circumstances significantly changing at some point while you are still paying the loan off.
If, for instance, you lose your job with a year’s worth of repayments still to be made, and you begin missing payments as a result, this could adversely affect your credit rating, and present a high chance of the lender taking action against you.
On the positive side, though, interest rates on long-term loans do tend to be lower than on short-term loans, because the money is being borrowed over a longer period of time.
Ultimately, there is no single right or wrong answer to the question, “are short-term loans or long-term loans best?” Whichever route you do opt for, though, it is crucial to ensure you only take out a loan you can realistically repay on the agreed terms. This will help reduce your chances of slipping even further into debt in the long run.
"Warning: Late repayment can cause you serious money problems. Always consider if borrowing is the right option for you and ensure you can repay your loan." For help, go to moneyhelper.org.uk.