Long-term Loan Vs. Short-term Loan: Differences You Should Know

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personal loans

Long-term and short-term loans differ in many ways. Long-term loans can include a home loan. When we talk about short-term, long term personal loans, which are most common, come into the picture. 

Here are the key differences between a long-term and a short-term Personal Loans:

  • Tenure

A long-term loan usually has a tenure of 10 to 20 years. On the other hand, a short-term loan is generally for 1 to 4 years.

  • Loan Amount

The loan amount for a short-term loan is much smaller than for a long-term loan. It is because a larger amount requires a longer time for repayment.

  • Collateral

A long-term loan is of a higher value with a longer tenure than a short-term loan. It, therefore, often requires collateral as security. Conversely, a short-term loan offers a smaller amount and does not require collateral.

  • Interest rate

Long-term loans charge a lower interest rate than short-term loans. Short-term loans charge a higher rate since the repayment period is shorter and there is no collateral.

  • Credit score

Both long and short-term loans require good credit scores as they are collateral-free. A lower score may invite a higher interest rate or even loan rejection. Long-term loans however, do have a few more financial checks than shorter ones.  

  • Documentation and processing

Short-term loans require minimal documentation and faster processing. However, long-term loans require lengthy documentation and longer processing time as the amount is higher.


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