• Olsen Breet
  • September 29, 2020

Broadly speaking, there are two types of loans – short term and long term. The primary difference between both types of loans is the term. To understand it in plain words, you can say the loan that has a duration of up to 36 months is a short-term loan, or a long-term loan is one that has a duration over three years that can go up to 5, 10, 20, or 40 years. However, this fundamental difference is not enough to understand both funding sources.

Here is a complete analysis of both types of loans.

Borrowing Amount

There is no denying that the borrowing limit depends on your credit score and affordability, yet you can borrow as minimum as £1,000 that can go up to £25,000 in case of short-term loans. Long-term loans can allow you to borrow up to £70,000.

Note that every lender follows different criteria. Therefore, some lenders may or may not have the same maximum disbursal limit for both the loans.  A few lenders are out there that lend money less than £1,000 too. It can be £100, £200, or £500, depending on the lending criteria they follow.

Types Of Short-Term Loans

The following are the types of short-term loans, and all of them have different features and different purposes.

Personal Loans

These loans are unsecured loans that you can use to fund all of your planned expenses. The best reasons for taking out these loans are wedding, car purchase, and home improvement. The duration of these loans depends on the amount you borrow.

Personal loans can be quite expensive because they have a bit of high-interest rates. It is because they are unsecured and increase the risk of a lender. It is paramount to have a good credit report to apply for these loans. However, a few direct lenders do not flinch from accepting applications from bad credit borrowers.

No Guarantor Loans

As the name suggests, no guarantor loans are funding sources that require no guarantor. When you have a bad credit rating, a lender will require you to arrange either collateral or a guarantor with a good credit report, but this traditional method does exist no longer. Online lenders can sign off on no guarantor loan application despite a bad credit score. You can apply for these loans to fund any unexpected expenses.

Unemployed Loans

Unemployed loans aim to help the unemployed. Direct lenders understand that you may lose your job anytime, and as a result, you would have difficulty getting. Unemployed loans can help you tide over when your savings have fallen short. However, you will have to prove your repaying capacity. You must have an income source other than a full-time job like a part-time job, income from freelancing, or a rental income.

Bad Credit Loans

Bad credit loans aim to help those borrowers that have a poor credit rating. Direct lenders approve these loans so, you do not face difficulty in funding emergency. They understand that it is not always your negligence to fall behind repayments,  and therefore they approve these loans at competitive interest rates.

Consolidation Loans

When you are juggling with multiple debts, you may prefer to take out a consolidation loan. It means consolidating all of your current loans, so you have one large loan to repay. Consolidation loans can help you get the deal at a lower interest rate. It can also help you improve your credit rating.

Types Of Long-Term Loans

There are mainly two types of long-term loans: mortgage and business loans.


A mortgage is a loan that you borrow against your home. It is a secured loan because your home serves as collateral against the money you borrow. There are various types of mortgages, for instance, first-time buyer mortgages, commercial mortgages, buy-to-let mortgages, and bad credit mortgages.

Business Loans

Business loans can be short term as well as long term depending on the amount you are borrowing. Business loans are also secured loans, and they are exclusively for funding business expenses. For instance, if you want to buy equipment, this will serve as collateral against the money you are borrowing.


Repayments vary from loan to loan. Short term loans from direct lenders except for personal loans usually require you to pay in a lump sum. However, under some circumstances, it can be weekly or bi-weekly. Like long-term loans, personal loans will require you to pay off in fixed monthly instalments.

Interest Rates

Interest rates for short-term loans are higher than long-term loans. However, the total cost of the former will be less than that of the latter. When it comes to comparing interest rates, make sure that you consider the annual percentage rate (APR). It includes interest rates and processing fees into the bargain. Even though interest rates are affordable for a particular type of loan, it can be high in case of a bad credit rating. It means whether you are applying for short term or long term loans from direct lenders, interest rates vary from borrower to borrower because it depends on your credit rating.

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