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Should you apply for a long term loan

Should you apply for a long term loan

The process of borrowing money from a bank or some other type of financial institution is something which is familiar to most people. Since a large majority of adults is forced, at least once in their lives, to seek help from those facilities. Money is something which we all constantly need. In certain occasions we need larger amounts and it often happens that we do not have enough at that particular moment.

Some people try to predict those expenses and they use savings accounts and other methods of saving to accumulate large quantities of cash. This can be a risky activity and some lack the basic discipline for this process to be successful. Those who are not capable of save enough money are forced to borrow it, whether from a bank or from friends and family.

Types of loans

Banks offer different types of loans. They are designed to suit various needs of the customers and to satisfy every requirement that they may have. Experts often divide loans in two general categories based on the duration of the loan. Those two groups are called short term and long term loans.

Short term loan

Every loan which is taken for a period of under 1 year is usually considered short term loan, but this can sometimes be extended up to 2 or even 3 years. Everything over 3 years falls into the category of long term loans, and they can have maturity date of 25 or 30 years, while some can last even longer. Payback dates are a flexible category, and clients can usually arrange personal specifications of the loan.

 

Long term loan

When it comes to clients who need large amounts of money in a short period, most experts will advise them to take a long term loan. Since this type of loans has various benefits and advantages over other types. For example, long term loans have lower interest rates. Because banks take some form of guarantee, which they call a collateral. This guarantee reassures them that they will have a return with their loan, even if the client defaults on the payments.

This method is present in mortgage loans, where the house you wish to buy will serve as a collateral. If you are unable to follow on your monthly payments – the property will be seized by the bank.

Another advantage of long term loans is the fact that this type of loans includes lower monthly installments. Simply because the total amount has to be re-payed over a longer period. More months means less money per an individual payment, and this appeals to a lot of people. Since they are left with more money for their everyday expenses and needs.

Therefore, long term loans are a great option for people who need large amounts urgently. But they are unable to return the money in a short period. Long term loans allow them to have larger buying power.  To invest in bigger projects and expenses, without disrupting their daily or monthly budget a lot.

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