How to Classify Long- and Short-Term Loans
Loans provide fast money for expensive purchases or the consolidation of outstanding debts and credit lines. Before applying for a loan, understand the difference between short- and long-term loans. By researching how loans are classified, you can better decide what loan product is right for you and your financial needs. You don't need extensive financial knowledge to understand different loan types.
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Instructions
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Understand the characteristics of a short-term loan. A short-term loan is a secured or unsecured loan product that is scheduled to be repaid in less than 12 months. Short-term loans can dip as low as $200 dollars or reach as high as $25,000. Approval is based on creditworthiness.
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Apply for a lower interest rate when applying for a short-term loan product. A lender's risk increases as the duration of a loan increases, so in most cases, expect lower interest rates for short-term loans. However, according to Info Trak's website, short-term loan interest rates can increase during a downturn in the economy.
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Request an extension. Short-term loans can be extended, especially if a small loan (e.g., $1,500) cannot be repaid in the expected 30-day time period.
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Understand the characteristics of a long-term loan. A long-term loan is a secured or unsecured loan product that is scheduled to be repaid over a period of time exceeding ten years. Loans spanning 20 to 30 years are common when financing real estate. Frequently, long-term loan amounts exceed $5,000.
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Expect more stringent requirements for approval, as long-term loans are subject to a longer repayment period than short-term loans. Show proof of income, proof of employment and attach copies of your credit file.
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Secure high0value long-term loans with collateral, such as a real estate title or automobile.
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Comply with long-term loan terms. Extensions may be given in some circumstances, depending on the applicant, the lender and the conditions of the loan.
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Tips & Warnings
Don't apply for a loan you cannot afford to repay.
Missing a series of loan payments could jeopardize your credit file.
