We here at Sunny Loans UK understand that there are different types of loans available for customers. However, it can be difficult to find out which ones lenders prefer.

Short-Term VS Long-Term Loans Which One Do Lenders Prefer

There are benefits and drawbacks of using each type, and you may be wondering which ones lenders prefer. Here’s where we come in to help you find out.

Do Lenders Prefer Long-Term or Short-Term Loans?

We’ve noticed that most lenders prefer short-term loans, as long-term loans carry more risk with them. While long-term loans are more popular among borrowers due to the higher loan amount available, they also have fluctuating interest rates.

It is also more likely that the loan is repaid in full, as the borrower won’t have a change in lifestyle in a short space of time that could affect them.

But what are examples of some short-term or long-term loans, and what are they? We can explain that for you now.

What Are Short-Term Loans?

Short-term loans are the type of loans where you borrow a fixed amount of money, with a maximum of one year to pay it back.

There are a number of different short-term loans available, so we recommend that you do your research before you commit to one.

Typically, the lender will check your credit history. If you have a poor history, you may face higher interest charges and fewer options than anyone with a good credit score.

So, it’s recommended that you get a loan when your credit record is better.

What Can You Do With A Short-Term Loan?

There are many reasons someone might take out a short-term loan. Maybe an unexpected bill has arrived, or you need to repair something in your house or car.

Short-term loans are perfect for these situations, as even with a higher interest rate, they’re relatively easy to apply for. However, due to that, you should always be cautious when applying for one.

These short-term loans are best used when you need to buy a new appliance or if you need to pay for an emergency dental appointment.

It is best to apply for a short-term loan when you know you can pay it back.

Pros And Cons of Short-Term Loans

Before you borrow, we should note that these loans come with their own benefits and drawbacks. 

Pros

The good thing about short-term loans is that if you have a good credit rating then you should have a lower interest rate and higher borrowing limits.

They’re also much easier to manage, as you can split them into monthly payments. This makes them more flexible and versatile, as they also don’t need a specific purpose.

Long-term loans require a plan and a reason for why they are needed, unlike short-term loans. Not only that, but you don’t need to include any collateral, which makes them more accessible.

Cons

Unfortunately, there are some drawbacks to short-term loans as well. While you should be fine if you have a good credit rating, short-term loans generally have higher interest rates.

Short-Term VS Long-Term Loans: Which One Do Lenders Prefer?

However, if you defaulted on a long-term loan, then your property could be at risk. With short-term loans, the fees and penalties may be high, but these won’t mean that you will lose collateral.

Among these high fees may include an early repayment fee, which can be more expensive if you want to pay your loan off earlier.

What Are Long-Term Loans?

We would describe a long-term loan as one with a repayment schedule that lasts longer than a year. The costs can be spread over an extended period, and they can be repaid in monthly instalments.

However, these loans may cost more in the long run, and are typically paid off within five and ten years.

Generally, they can be more expensive in the long-run, but they do offer more flexibility when compared to short-term loans.

What Can You Do With A Long-Term Loan?

When you apply for a long-term loan, you will often need to explain what you want to use the loan for.

There are several things a long-term loan can be used for, including home improvements, dental emergencies, cosmetic procedures, weddings, purchases of a car, and debt consolidation.

You can’t get a loan to cover a mortgage, but generally, you will need to explain why you want to have the loan before you are approved for it.

Pros And Cons Of Long-Term Loans

Before you plan to borrow for a long-term loan, we recommend that you weigh the benefits and drawbacks before you commit.

Pros

Long-term loans are better for those with a good credit score, as you might be able to obtain lower interest rates.

This is better for anyone who wants to secure a larger loan with long term goals included, and they offer more flexibility.

Plus, you can select whether you want a secured or unsecured loan based on your own preferences.

So they are a popular option for those who want to invest in something but don’t necessarily have the funds at that moment.

Cons

However, if you get long-term secured loans, you could end up with repossessed assets, such as your home if you’re a homeowner, if you default on your payments.

It also means you’re in debt for an extended period of time, and those with a lower credit score won’t have lower interest rates.

If this happens, it could mean that you have to repay more for your loan as you accrue more interest.

However, paying off early could be a challenge as a number of lenders impose early repayment charges.

Should You Get A Short-Term or Long-Term Loan?

If you need the money quickly and you want to pay back quickly, then a short-term loan could be ideal for you.

We recommend getting a short-term loan if you want to pay back quickly, and if you have the funds to repay it without defaulting on your interest.

Some short-term loans, such as payday loans, are more dangerous as they’re seen as more expensive, and they can easily lead you into debt.

Instead, you should only borrow what you can afford.

The same can also be said for long-term loans. These long-term loans are great when you need a large amount, but you should ensure that you can repay it.

We here at Sunny Loans UK suggest that you only get a long-term loan if you are in a good financial position. Otherwise, you may be in danger of defaulting.

We believe that the only way you can know whether you need a short-term or long-term loan is by doing your research beforehand.

If you do take out a loan, we recommend looking up competitive interest rates and ensuring that you’re in a viable position to pay back your loans.

Final Thoughts

Ideally, short-term loans are more popular among lenders as they are more likely to be paid back to them.

Long-term loans have more risks attached to them and may not necessarily be beneficial to lenders in the long run.

While long-term loans may be helpful for borrowers, they are not well-liked by lenders. However, we must stress that you only take out short-term loans if you can pay them back.

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