Looking for a personal loan to finance your next big purchase? Well, it is essential to conduct some research before opting for a loan, especially regarding their types.
Due to their flexibility, personal finance loans come in various forms. You can avail this variability when it comes to loan amounts, or in your repayment schedules. The variety these loans offer is the main reason why they’re one of the most sought-after finance options of our times.
Even when it comes to tenures, these loan products provide mainly two choices: short-term loans and long-term loans. While the latter allows you to build a good credit score and ensures low personal loan interest rates, the former can help you acquire a substantial amount quickly, in case of emergencies.
Additional Read: EPF Advance v/s Short-Term Personal Loan
But the disparity doesn’t end there. To ensure that you’re receiving the best enough loan product, you need to know all the differences between short and long-term loans.
Let’s have a closer look at the contrast.
|Points of difference||Short-term personal loan||Long-term personal loan|
|Tenure||The tenure for short-term loans is usually 24 months or less.||In the case of long-term loans, the tenure can be anywhere above 12 months, up to a maximum of 5 years.|
|Rate of Interest||Since short-term borrowers usually have bad credit ratings, short-term loans have higher, less flexible interest rates to prevent borrower default. Therefore, it’s better to plan your finances using a personal loan EMI calculator.||Long-term loans usually follow reducing interest rate method, wherein your interest rates get reduced after every subsequent EMI payment. This deduction helps you save a lot in the long run.|
|Credit Score Requirement||A lower credit score may be acceptable.||Low credit scores can get your loan application rejected. So, it’s essential to evaluate your personal loan eligibility before opting for a long-term loan.|
|EMI Amount||Given the tight tenure, the monthly instalments you’ll have to pay will be on the higher side.||Since long-term loans are spaced out over a longer duration, the price of each monthly instalment is reduced.|
|Disbursement speed||Short-term loans are disbursed very swiftly due to the minimal documentation and small loan amount.||Long-term loans usually have a high sanction amount, due to which the lender needs more time to evaluate your repayment capability. Hence, these loans require substantial time to be disbursed.|
|Security||Since short-term personal loans don’t pose much of a threat to lenders when it comes to repayments, you don’t require to pledge a collateral.||If your credit score isn’t high enough for a long-term personal loan, the lender may not be convinced of your ability to pay it back. Therefore, you may be asked to offer collateral.|
|Documentation||Requires minimal documentation.||Extensive documentation required due to the longer term and high loan amount.|
Have you made up your mind about getting a personal loan for self-employed? In that case, Tata Capital has a host of loan products for you, which are accompanied by features such as quick documentation, easy processing, and flexible repayment tenure.
Additional Read: Dos and don’ts for an instant personal loan in India
Get in touch with us today and begin your personal finance journey.