Services: 10 Mistakes that Most People Make

Kinds of Loans and the Benefits of Short Term Loans

There are three important aspects when one thinks of procuring a loan. The three important elements of a loan are the length of the term, the amount of money you wish to borrow, and the interest rate.
If we compare two loans with the same principal but different length of terms, one for a shorter terms but with a higher monthly payment, but the other is a long term loan with lower monthly payment; the low monthly payments, however, will have compounded interest rates which will make you pay more than the loan itself. With a short term loan, you will be able to pay the principal in a short amount of time with large payments, but with the long term, the payments are smaller and will take a while before the principal is completely paid up.
IF you think of short term loans with large monthly payments, you might think it unappealing since you might have need for cash for unforeseen contingencies and it can tip off your cash flow. You should, however, not be discouraged because of this higher monthly payments. Short-term loans make financial sense and can be a really good option. The length of time for the loan should depend on what you will use the loan for and for example, if you need money to buy a house, then it is best to get a long term loan so that the small monthly payments you give will just feel as though you are renting the house. But in business however, the shorter time you could pay back your principal the better since they usually charge lower interest.

But don’t get into it right away since not all short-term loans have lower interest rates. IF there is no co-maker or no collateral or secured asset, then lenders usually charge higher interest rates even for short term loans.
There is actually lower interest rates with many short term mortgages in general. This can give you money savings in some ways. You will pay lower interest rates in total. Short terms loans are good for businesses so that they can face future unpredictability once they have paid their loans. This will prepare you for what the future holds. With a long-term loan, you will still be responsible for payments far into the future, regardless of what your financial situations is. Predicting and budgeting for a short terms loan is much easier that forecasting the future.

Not only that, the more short-term loans you get and paying them off in a timely manner, this will increase your credit score card where you become a good target to lenders by giving you discounts and other perks.


Categories: Financial