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Long Term vs Short Term Loans: All You Need To Know

Long Term vs Short Term Loans

What are short-term loans?

Short-term loans are essentially personal loans that you repay within a shorter term (usually 6-12 months), borrowed to tide over a financial crunch or an unprecedented expense. A short-term loan’s payout is quicker since the loan amount is small. You may receive the money in your bank account within a few days after the lender transfers the funds.

Credit scores are important components of your financial scorecard, as they are an insight into your credit history and affordability. When lending money to you, lenders assess your credit score to measure risk, and low credit scores present a higher risk to lenders. Consequently, lenders set higher interest rates for borrowers with below-average credit scores. If you happen to secure a short-term loan with a low credit score, you should use it responsibly, as it can be an opportunity to improve your score.

Your lender reports your repayments to credit bureaus regularly. Your credit score improves when you make your payments on time. You can, however, damage your credit score by missing payments. Moreover, if you default on your loan, the lender can obtain a County Court Judgment against you. CCJs will appear on your credit report for six years. You can lose up to 350 points, which will seriously impact your chances of obtaining credit for financial milestones and life goals in the future.

How can I use short-term loans?

You can use a short-term loan for a multitude of purposes, some of which are listed below:

  • Minor home improvements
  • Repair works – vehicle or home
  • Debt consolidation
  • Emergency medical bills
  • Wedding expenses
  • Purchase of a new appliance
  • Purchase of business equipment
  • Regulating operational costs of a business

What to consider when borrowing short-term loans?

Here’s what you should consider before borrowing a short-term loan:


  • Flexibility and versatility: A short-term loan does not have a defined purpose like mortgages or auto loans. You can use a short-term loan to repair your house, pay off urgent medical bills, fix your car, and more.
  • Lower interest rates and higher borrowing limits: If you have a good credit rating, you can borrow a large number of funds at a lower interest rate than most credit cards.
  • No collateral requirement: You don’t need to put up your assets as collateral to obtain an unsecured personal loan, making them easily accessible for both tenants and homeowners.
  • Easier to manage: With a short-term loan, you can split your monthly payments into manageable amounts that are easier to cope with household expenses.


  • Interest rates can be higher than alternatives: A short-term loan tends to carry a higher interest rate than other loans secured by properties, such as a HELOC or home equity loan. However, a secured loan can put your property at the risk of repossession if you default.
  • Fees and penalties can be high: Personal loan lenders sometimes charge additional fees, which increase the APR. These charges include – early repayment fee, missed payment fee, arrangement fee, etc.
  • You may not be able to settle the loan early:Many lenders levy a hefty fee on early repayment of short term loans. Check to contract for such charges before planning to pay your loan prematurely.

What are long-term loans?

Generally, long-term loans are unsecured loans with a repayment schedule of more than one year. With a long term personal loan, you can spread the cost of your purchase over an extended period and repay in affordable monthly instalments.

You may consider a long term loan if you want to pay smaller monthly payments. However, it is important to understand that long term loans may cost you more in the long run. Since you have to pay interest on the loan throughout the entire term, along with the monthly instalments, you may pay more in interest for a 10-year loan than a 5-year loan.

So, even if you get a loan offer with low interest, you may end up paying more if the term is too long. Therefore, a long term loan may prove to be more expensive overall. Although, if you’re looking for an option to give you flexibility, smaller instalments and a higher loan amount, long-term loans may be a viable option for you.

How can I use long-term loans?

Here’s when you can use a long-term loan as your financial aid:

  • Home improvements
  • Debt consolidation
  • Unplanned medical expenses / high-cost
  • Cosmetic procedures
  • Wedding expenses
  • Investing in business equipment

What are the pros and cons of borrowing long-term loans?

It is important to weigh the pros and cons of long term loans before opting for one:


  • You have the option to borrow a secured or an unsecured long term loan, as per your preference.
  • You can borrow a larger loan amount with long term loans
  • A good credit score will fetch you offers with lower interest rates.
    In the long term, you’ll have to pay smaller monthly instalments.
  • You may get greater repayment flexibility.


  • Defaulting on secured loans could lead to foreclosure and repossession of your assets.
  • You’re under a debt obligation for a more extended period.
  • Borrowers with a low credit score may not get competitive interest rates.
  • You may end up repaying a larger amount since you will accrue interest for the entire term.
  • Some lenders impose a charge on the early repayment of the loan.

Long Term vs Short Term Loans

The major difference for Long Term vs Short Term Loans is that short-term loans are for a period of 6 to 12 months whereas Long Term loans will have a repayment period of more than 1 year.


How much is credit card debt too much?

Debt is a part of every financial lifecycle. While debt itself isn’t bad, how responsibly you handle it defines its impact on your finances. Even if you’ve combatted multiple debts before, you have to ask yourself where to draw the line – just how much debt is too much? 


  • You’re borrowing money to settle your debts: Are you at a stage where your income doesn’t suffice, and you feel the need to borrow more money to pay your debts? If this sounds familiar, you must take some time to understand your finances and reconsider your spending habits – start with a budget! 


  • You’ve run out of savings: If your savings have already been exhausted from paying off debt, you must correct the pitfalls in your personal finance management. You should ideally always have a savings pot to fall back on in the event of an unprecedented emergency. So, as soon as you realise the situation’s gravity, it may be wise to start planning your way out of the debt spiral.


  • Talking about money gives you anxiety: A pile of unpaid debt can leave you perplexed and anxious. Sometimes people reach a point where they live in denial about their financial problems, which can have long-term adverse effects on your mental and financial health. The key to solving your problems is addressing them head-on. 
What happens if I don’t settle my credit card debt?

Not paying off your credit card debt can leave a negative footprint on your credit file, and missed payments can strip your credit score off of quite a few points. On the other hand, a default doesn’t only lower your credit score by up to 350 points, but lenders can sometimes serve you with a CCJ. A CCJ stays on your credit file for up to 6 years, hampering your chances of securing credit shortly. It may be challenging to meet your financial milestones if you rely on credit.

Does LoanTube charge an arrangement fee on Debt Consolidation?

LoanTube does not charge an upfront fee for your loan. With zero upfront fees, we’re passionate about helping you find the right loan.

Should I close the credit accounts that I’ve paid off?

Many people tackling clustered debt may be under the impression that closing your old credit accounts improves your credit score. However, this isn’t true. Even closing a paid-off credit account can lower your credit limit and, consequently, your credit utilisation ratio.


Credit utilisation measures the ratio of the credit you utilise from the total credit available to you (your credit limit). Ideally, your credit utilisation ratio should be 30% – meaning that you should be using no more than 30% of your credit limit. Now, when you close a credit account, your credit limit drops, bringing about a rise in this ratio. An increase in the credit utilisation ratio results in a drop in the credit score, sometimes a rather significant one.

How will debt consolidation loans affect my credit score?

Like any other credit, debt consolidation loans leave a footprint on your credit report. Whether this footprint is positive or negative depends on how responsibly you utilise your loan. Your credit score will improve overtime as you simplify and untangle your repayments and pay down your debt consolidation loan. 

Adhering to your repayment schedule is crucial for a debt consolidation loan to work effectively. So, ensure that you make timely payments towards the loan. Additionally, closing your old could also reduce your credit score. 

Even though paying off your debt is good practice, closing a paid-off account could lower your credit limit, thus increasing your credit utilisation ratio. An increase in the credit utilisation ratio can considerably decrease your credit score. 

There will be a slight drop in your credit score when you apply for a debt consolidation loan owing to a hard credit enquiry. However, its effects may be insignificant and will diminish over time with a series of sincere repayments.

What is the maximum amount that I can borrow through LoanTube?

You can borrow up to £35,000 over 3-7 years with LoanTube. 

Warning: Late repayment can cause you serious money problems. For more information, go to MONEYADVICESERVICE.ORG.UK

Credit subject to status & affordability assessment by Lenders.

LoanTube is a credit broker and not a lender. Think carefully before securing debts against your home. Your home may be repossessed if you do not keep up repayments on any debt secured against it.

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