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HomebusinessPersonal Loans: What's the Difference Between Short and Long-Term Loans?

Personal Loans: What’s the Difference Between Short and Long-Term Loans?

Are you in need of a personal loan to help you fund your next large purchase? Before choosing a loan, it is necessary to do some research, particularly on the types of loans available.

Personal finance loans come in a variety of shapes and sizes due to their versatility. This flexibility is available when it comes to loan quantities and repayment arrangements. The variety of these loans is one of the reasons they’re one of the most popular financing options today.

Even when it comes to lending terms, these products primarily offer two options: short-term and long-term loans. While the latter allows you to create a strong credit score and secure inexpensive personal loan interest rates, the former can assist you in obtaining a large sum of money swiftly in the event of an emergency.

The difference, however, does not end there. To make sure you’re getting the finest loan possible, you should understand the distinctions between short and long-term loans.

Let’s look at the contrast in more detail.


  • Short-term loans usually have a period of 24 months or less. 
  • Long-term loans can have a length of up to 5 years, with a maximum of 12 months.

Interest Rates

  • Short-term loans feature higher, less flexible interest rates to prevent borrower default because short-term borrowers typically have poor credit scores. As a result, using a personal loan EMI calculator to organize your finances is preferable.
  • Long-term loans typically use a lowering interest rate technique, in which your interest rate decreases with each EMI payment. This deduction allows you to save a significant amount of money in the long run.

Requirement for a Credit Score

  • It’s possible that a lower credit score will suffice.
  • Your loan application may be refused if you have a poor credit score. As a result, before taking out a long-term loan, you should analyze your personal loan eligibility.

Amount of EMI

  • The monthly installments you’ll have to pay will be on the higher side due to the short term.
  • Because long-term loans are spread out over a longer period of time, the cost of each monthly payment is lower.

The quickness of disbursement

  • Because of the low documentation and small loan amount, short-term loans are disbursed quickly.
  • Long-term loans typically have a high sanction amount, requiring the lender to assess your repayment ability over a longer period of time. As a result, disbursement of these loans takes a long time.


  • You don’t have to put up any collateral because short-term personal loans don’t offer much of a risk to lenders in terms of repayment.
  • If your credit score isn’t good enough for a long-term personal loan, the lender might doubt your capacity to repay it. As a result, you might be asked to provide collateral.


  • It only necessitates a minimal amount of paperwork.
  • Due to the extended period and large loan amount, extensive documentation is necessary.

Have you made up your mind about receiving a self-employed personal loan? In that scenario, Tata Capital has a variety of short term loan options for you, including rapid documentation, simple processing, and a customizable repayment period.


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