4 Key Things to Know About Long-Term Loans
September 30, 2018
Today many different types of loans and borrowing options are available to meet both your short-term and long-term financial goals and get past financial troubles. These include payday loans, personal loans, housing loans, car loans, and so on. While some of these such as a payday loan is classified as short-term loans because the borrowing limit and repaying term is short, others including personal loans and housing loans are classified as long-term loans mainly because of the large sum borrowed and the extended repayment term. Check out the different loan types, tenure, and your eligibility at https://perusvippi.fi/pikavippi-pitkll-maksuajalla/.
Characteristics of a Long-Term Loan
- The time duration to repay such loans extends over a longer period, at least more than a year. Hence, these loans are best suited for those who want to pay off their loan amount in small installments spread across an extended repayment period.
- Some of the common examples of a long-term loan include mortgages, car loans, equity loans, boat loans, educational loans, major appliance financing, business loans to obtain the necessary working capital and other personal loans.
- The main advantages of taking a long-term loan include higher principal balance and lower interest rates than any other loan. Moreover, repayments of long-term loans will help you be eligible for tax benefits.
- However, the main disadvantages of taking a long-term loan are that it is risky mainly because of the long time period involved and that it has a long-lasting effect on one’s overall monthly cash flow. Moreover, in most cases, long-term loans are secured with some collateral such as a property to reduce the risk of the lender. Therefore, you need to ensure that you have a good and steady repayment capacity throughout the loan period.
4 Key Points About Long-Term Loan
Before opting for a long-term loan, you should be aware of these four main points.
- Eligibility Criteria – Since long-term loans involve a huge amount, strict eligibility guidelines apply. However, some of these eligibility criteria may differ from one lending institution to the other. Some of the common criteria to be eligible for applying for a long-term loan are that the loan applicant must be over 18 years of age, should have a steady income, and must be a resident of that particular country from where he/she is applying for the loan.
- Credit Rating – Like all loans, the applicant must ensure that he/she has maintained a good credit rating. Since every loan is associated with a particular interest rate and specific repayment term, the lending institution needs to verify if you will be able to repay the loan. This is where a credit rating or a credit report comes to play. An applicant with a good credit rating or past credit history will be sanctioned a loan in the most convenient and quickest manner. However, a person with a low credit rating stands at the risk of getting their loan rejected. Therefore, make sure to maintain a good credit rating and to get it checked before applying for a loan.
- Cost – All loans need to be repaid with an additional interest, hence costs associated will be obviously more. However, it is cheaper if you borrow more, which means that long-term loans might be beneficiary in terms of loan repayment when compared to short-term loans. Although common sense says the contrary, this is the fact because it is the interest rates that govern how expensive loans can get. While short-term loans are calculated at high-interest rates, long-term loans are offered at lower interest rates.
- Loan Amount and Interest Rate – Before applying for a loan, you need to first estimate how much loan amount you need and how soon you will be able to repay it back. If the amount required is large, then opt for a long-term loan. Generally, you can avail somewhere between $5,000 to almost $500,000 under long-term loans. Next, is the interest rate. Interest rates tend to vary from time to time and sometimes you come across situations where the rate advertised will be different from that of what is actually offered to you at the time of application. Hence, make it a point to know what is being charged rather than being in for a shock/surprise.
In short, long-term loans are a great alternative to fund your financial needs when you are short of cash. Nevertheless, like all types of borrowing, you need to do your homework and do the math to calculate and check which type of loan will prove beneficial to you in the long run based on your repayment capacity.