Are Short-term Loans Better than Long-term Loans?

There are many different types of loans and it can be confusing knowing which might be the best to use. There are some which have specific uses and it is easy to decide between those. However, there are a lot of loans and if you can understand some of the fundamental differences between them then this will help you to be able to choose the right ones for you to use when you need to borrow money. One of these differences is between short-term loans and long-term loans. If you know how they differ then you will be able to tell which are better.

Credit rating

With long-term loans or more traditional loans from high street lenders, they will always want you to have a decent credit rating before they lend you any money. They will always do a credit and check and find out what your borrowing history is like to decide whether they feel that you will be able to repay the loan. Although they all have different criteria that they use to judge you on, it is generally the case that they will usually be unlikely to lend to anyone that has failed to repay a loan in time in the past or that has no evidence that they can make regular payments. They may also judge on income and anyone not earning much may be refused as well as the self-employed, unemployed and pensioners.

With a short-term loan the credit check is not done in the same way. It is used to check that the person exists and has an income but their previous history is not looked at. This means that even if you have struggled to get approved for a loan with a long-term lender, you may still be able to get one from a short-term lender. They still have some criteria that need to be fulfilled but they are very few. This means they very rarely turn down an applicant for a loan.


With a long-term loan it can take some time for the application to be processed and for you to find out whether you have been approved for the loan or not. Then you will have to wait for the money to be handed over to you. A short-term loan is designed for help in emergencies and therefore it is understood that the money is likely to be needed really quickly. Therefore, they will very quickly look at the applications and decide whether they approve them. This is partly sped up by the fact that they do not look at the credit rating. Some lenders can even get money into a person’s bank account within a few hours of them applying. This does vary between lenders, but generally a short-term lender’s will be very fast and the slowest would take only a few days to get the person the money that they want.

Amount of money

The amount of money that each lender can provide varies a lot. However, generally a long-term lender will lend and lot more. For example, long-term lenders might provide mortgages, car loans, personal loans, student loans and things like this where significant amounts of money are borrowed. However, short-term lenders will only provide small amounts of money. Generally, this will be £100 – £1000. This can be good, because it means that you cannot borrow lots more than you need, as doing this will be expensive and it will make it harder to repay and even increase the chances that you miss a repayment or fail to repay the loan completely. However, if you do need a big chunk of money, then it could be that a short-term loan will just not provide you with enough.

Term of loan

The term of loan refers to how long it lasts. Larger loans, tend to last longer because the borrower will need longer to repay it as they will not be able to repay huge amounts of money each month. As short-term loans are for less money, they will last for less time. A payday loan, for example, has to be repaid in full, in one lump sum. On the borrowers next pay day. This means that it could last anything from weeks to only days. An instalment loan will last a bit longer as the repayments will be spread over a few months to make it more manageable. Some people really dislike being in debt and so having a short term can be better for them as they will find it a lot easier.

Therefore, you can see that because ether are some big differences the loan types, that whether one is better than the other, will very much depend on what you want the loan for. It is good to be aware of these differences and then when you need a loan, you will be able to more easily decide which of the loans will be the best ones for you.