Short-Term Loan vs Long-Term Loan: 6 key differences

3 min read Mar 7, 2024

Personal Loans present unique advantages for managing your finances. Whether it's an unexpected bill or a planned expense, these loans offer varying repayment periods to suit your needs. Opt for Personal Loans to gain flexibility in tenure that aligns with your financial goals and payment capabilities.

Difference between short-term and long-term Personal Loans

When evaluating short-term loan vs long-term loan options, you must consider several key factors. Each factor plays a significant role while considering the difference between long-term and short-term loans.

1) Loan amount

• Short-term Personal Loan: Designed for swift financial assistance, these loans offer modest sums, swiftly bridging shortfalls without the burden of a heavy debt load.
• Long-term Personal Loan: Suited for more considerable financial endeavours, long-term loans provide substantial amounts, facilitating major purchases or long-held dreams with a correspondingly longer payoff timeline.

2) Interest rates

• Short-term Personal Loan: These loans typically bear higher interest rates to compensate lenders for the shorter engagement period, which means you'll face steeper but shorter-term costs.
• Long-term Personal Loan: The interest here is spread out over many years, usually at a lower rate, which can mean more interest paid over the life of the loan but with manageable monthly impacts.

3) Loan approval process

• Short-term Personal Loan: The fast track to funds, these loans boast a streamlined approval process, ideal for when time is of the essence and the need is immediate.
• Long-term Personal Loan: Reflecting their heftier sums, the approval process is more rigorous, with in-depth credit checks to secure the lender’s extended investment in your financial future.

4) Duration

• Short-term Personal Loan: The clock on these loans runs for a year or less, a sprint towards quick repayment and debt clearance.
• Long-term Personal Loan: These loans extend over several years, providing you with space for financial planning and gradual repayment.

5) Collateral

• Short-term Personal Loan: These loans bypass the need for collateral, facilitating faster access to funds without tying up your assets.
• Long-term Personal Loan: Since this is an unsecured loan, it does not require collateral.

6) Purpose of loan

• Short-term Personal Loan: Ideal for urgent, unforeseen expenses, short-term loans are the financial equivalent of a tactical strike, addressing immediate issues without long-term entanglements.
• Long-term Personal Loan: They're the financial foundation for life-changing plans, from home acquisitions to education costs, aligning with a future-focused financial strategy.

Short vs long-term Personal Loans

Choosing between short-term and long-term Personal Loans depends on your financial needs and repayment ability.

Pros of short-term Personal Loans

• Beneficial for those looking for a quick financial solution without a long-term debt commitment.
• Typically have lower total interest due to the shorter payoff period.
• Often come with a faster approval process, allowing for immediate financial relief.
• Ensure you don't borrow more than what's needed.

Cons of short-term Personal Loans

• Offer immediate relief but demand larger monthly repayments.
• Unsuitable for those seeking aid for long-term financial goals, as they're designed to address current cash flow issues.
• Limited to managing small-scale financial needs and might not be an adequate solution for larger investments or expenses.

Pros of long-term Personal Loans

• Ideal for individuals who require substantial funds and have the advantage of spreading the cost over an extended period.
• Perfect for long-term financial planning, such as funding home renovations or education.
• Consistent repayment builds a strong credit history, enhancing your future borrowing potential.

Cons of Long-term Personal Loans

• The extended repayment period means you end up paying more in interest over the life of the loan.
• This extended financial commitment can tie up your borrowing capacity, making it challenging to acquire additional loans if needed.
• If your financial situation changes, you may find yourself locked into a payment plan that no longer aligns with your new circumstances.

How to decide on a loan term?

Deciding whether to opt for a long-term or short-term loan hinges on individual needs and repayment abilities. If manageable instalments and a lighter financial load are priorities, a long-term loan might be the way forward. Conversely, for those who want quick access to funds and are equipped to handle higher interest rates, a short-term loan could be a better fit.

It's also crucial to consider age as a factor in loan eligibility. Applicants approaching their retirement years, typically in their late 40s or 50s, may face challenges securing a 20 or 30-year loan due to the perceived risk of default by lenders as the retirement milestone looms.

Axis Bank Personal Loan EMI calculator

Navigate your loan repayment with ease using the Axis Bank Personal Loan EMI calculator, your quick and simple solution for financial planning.

• User-friendly interface: The Axis Bank Personal Loan EMI calculator is a highly user-friendly online utility. It's designed to simplify the calculation of your Equated Monthly Instalment (EMI) with just a few clicks.
• Quick calculations: Enter the loan amount, the applicable interest rate, and your preferred loan term. In mere seconds, the calculator processes this information to give you a detailed breakdown of your monthly repayment amount.
• Financial planning aid: Planning for a loan is a critical financial decision. The EMI calculator aids in this process by providing a clear picture of the monthly outgoings you can expect. This helps in budgeting and financial planning for both immediate and long-term financial goals.
• Loan tenure options: Whether you're considering a short-term loan with higher EMIs or a long-term loan with smaller, more manageable payments, the calculator can accommodate your scenarios, providing flexibility in your financial planning.

Also Read: Understand the minimum and maximum tenure for Personal Loan

Conclusion

In the financial journey of life, Personal Loans can be a lifeline, providing the necessary support when you need it the most. They empower you to overcome obstacles and seize opportunities without waiting, offering flexibility and convenience.

Embrace the power of choice with Axis Bank's Personal Loan offerings, where you can access up to ₹40 lakh with competitive interest rates starting at just 10.75% p.a. Enjoy the benefits of a paperless online process, quick approval in 30 seconds, and flexible tenure options from 12 to 84 months. Axis Bank stands by to elevate your financial potential, helping you meet your personal needs with ease and efficiency.

Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.