Loan in simple terms is the lending of money from one individual or organization to another individual or organization at a certain rate of interest for a certain period of time. In business, Loan is one of the most important aspects that sometimes determine the future of a certain company. This is a business loan and the process of transaction involves a lot of formalities and paper work. The other more important type of loan is a personal loan. This is a consumer loan lent to an individual for personal factors like medical services, car loans, marriage or any event loans, credit card loans, mortgage loans and several others.
A personal loan can be of two types namely Short-term and Long-Term loans. Depending on the needs and financial status of an individual the type of loan is selected.
1: Short-Term Loan
This type of loan, as the name suggests is provided very fast, sometimes even within 24 hours. This type of loan is mostly taken in cases of emergencies where you need a certain amount of money you don’t currently have to make transactions. It is generally up to about three years and in some cases even one year. Since the loan is almost issued immediately, the amount is generally lesser and the transaction between the lender and borrower has to be legalized through paper-work and sometimes keeping of the borrower’s asset(s) by the lender.
This form is loan is very suitable for personal matters as the rate of interest is initially high but does not climb due to the short tenure.
2: Long-Term Loans
These are loans issued for a longer period of time maybe even a decade. This multiyear repayment loan has a lower rate of interest than short-term loans but since the duration of time is so high, the borrower often ends up paying more in interest than the actually issued value. This type of loan is based on your credit score. The better your score, the better interests you get. They can be either secured loans, where the borrower has to provide a title to an asset to the lender as collateral or unsecured loans where the interest rate is much higher.
3: Making the Right Choice
When it comes to personal loans, it is often advised to take short-term loans as the risk factor is low, and the interest rates do not go very high. These loans are issued in very efficiently and are ideal for emergency situations. Long-term loans have risk factor and the interest climbs very high and sometimes it may not be possible for an individual to repay the whole amount leading to loss of property.