For decades, Canadians have applied for loans to help pay for several expenses, whether that’s for a wedding, paying off other debts, buying a home or a car, moving expenses, and hundreds of other reasons. Usually, people will decide between long term vs short term loans.
With this blog, we’ll help you learn a bit about both types of loans and understand which might be the best fit based on your financial needs and long-term objectives. Making an informed decision will prepare you to handle your financial obligations with confidence.
What Are Long-Term Loans?
Long-term loans (sometimes referred to as personal loans) are financial agreements that are meant to be repaid over an extended period, typically ranging from three years to as many as 30 years or even longer. With a long term loan, by spreading the payments over an extended period, these types of loans are good for bigger expenses. Common examples of long-term loans include mortgages and car loans.
A mortgage, for example, is a loan used to purchase real estate and typically has a repayment term that can stretch up to 30 years. This allows homeowners to repay their loans gradually over decades. Auto loans, on the other hand, are used to purchase vehicles and usually have repayment terms that range from three to seven years.
What Are Short-Term Loans
Short term loans (also called payday loans), as opposed to long-term loans, are meant for quick repayment, typically by your next paycheck or within a few weeks at most if you're going for short term installment loans. These loans (usually unsecured loans) are perfect for addressing immediate financial needs without a long-term commitment, which could be anything like an unexpected car repair, a utility bill that needs to be paid quickly, etc.
The best example of a short-term personal loan loan is a payday loan. Payday loans are usually due on your next payday (hence why they’re referred to as payday loans) and are ideal for covering urgent expenses like any sort of unexpected bill.
Especially with iCash, you get quick access to funds of up to $1,500 sent to your bank account, within 2 minutes of being approved, making us a go-to for emergency financial support.
When immediate cash flow is needed but not available from regular income or savings, payday loans are a great option for many, as the short repayment terms* and easy access make them highly suitable for handling financial emergencies.
Comparing Loan Terms
When choosing between a short-term personal loan and long-term personal loans, it's important to consider how interest rates and total interest paid affect your financial health.
Even though the interest rate is usually higher with short-term loans, the total interest paid can be less because you’re only borrowing for a short time. For instance, a payday loan might have a high annual percentage rate (APR) but since it's paid back within a month, the interest payments could be much lower compared to a long-term loan.
A long-term loan typically have lower interest payments, which makes the monthly payments more affordable. However, because the repayment period is much longer, the total interest paid over the life of the loan can actually be much higher. So even though the monthly impact on your budget might be lighter, the overall cost of the loan over time is greater. It's always important to factor in the interest costs.
Pros and Cons of Short Term Loans
One of the biggest advantages of a short-term loan is how quickly it can be processed. With private lenders like iCash for example, a payday loan can be applied for within 10 minutes and entirely online. Then, if approved, the funds are sent by e-Transfer in 2 minutes. This is why they’re ideal for urgent financial needs such as emergency repairs or unexpected bills. They're usually unsecured loans too, so you wouldn't have to put up any collateral.
While iCash does have some of the best rates and fees for payday loans in Canada, it’s important to remember that, in general, short-term loans have higher interest payments compared to long-term loans.
While a short term loan needs to be repaid quickly, often from your next paycheck, iCash is always willing to work with you if you find yourself in a situation where you are unable to do so. However, it’s important to contact us (or even any other payday lender you might be using) as soon as possible to let us know so that we can help you accordingly.
Pros and Cons of Long Term Loans
The biggest pro of long-term loans or personal loans is that because the cost of the loan is over many years, the monthly payments become more manageable. This allows borrowers to budget more effectively without being too much of a financial strain every month.
However, there are disadvantages to consider with long-term loans. Although the interest rates are typically lower than short-term loans, the extended repayment period means that the total interest accrued can be significantly higher when it comes to the overall cost of borrowing.
Also, since a portion of your income will go towards paying off this loan for quite some time, it may potentially limit opportunities to invest or save money in other areas due to these ongoing debt commitments. So if you're going for long term or personal loans, this is definitely worth considering.
Key Factors to Consider When Selecting a Loan Term
So, now that you know a little about the pros and cons of short-term loans and long-term loans, how do you go about deciding the right one for you? Here are a few things to consider.
The first significant factor to think about is, of course, the interest rate. Interest rates determine how much extra you’ll pay on top of the borrowed amount. Lower interest rates mean you will pay less over time, but they often come with longer loan terms.
You need to think about what your monthly payments will look like too. You need to budget and make sure that the monthly payments are manageable within your budget.
Lastly, carefully consider what your overall financial goals are. If your goal is to be debt-free quickly, a short term loan might be best. However, a longer term loan or personal loans could be more suitable if you’re managing multiple financial obligations.
Every financial decision you make should support your overall long-term financial health and help you achieve your financial objectives, without causing stress.
Choosing The Right Lender
Choosing the right lender for your loan needs is incredibly important. When selecting a lender, transparency is key. This means the lender should provide clear information about the interest rates, fees, and terms of the loan. This is why iCash spells out the terms as clearly as possible before you even sign up for a loan.
It’s also important to carefully review the terms and conditions. These include the repayment schedule, penalties for late payments, and any additional interest payments costs. A trustworthy lender like iCash will ensure these are straightforward and easy to understand. In some cases, you may be able to pay your loan early too, just be sure to contact us to ask!
While we believe and know that iCash has the best rates in the industry, we’ll always encourage people to do their research and compare different payday loan lenders. Look for differences in interest rates, and most importantly, customer reviews.
Need a Short Term Loan? iCash Can Help!
Choosing the right loan - whether it's a long-term or short-term option - is a big decision to make when it comes to handling your financial goals. Long-term loans are better for bigger purchases, with their lower monthly payments and longer duration.
Short-term loans, however, are fantastic when handling an emergency expense as quickly as possible. They can be applied for and received incredibly quickly, especially with iCash. Your credit history won't hold you back and you'll have a fairly short loan term.
We encourage you to carefully weigh these factors to find the loan that best fits your needs. If you’re considering a short-term loan, iCash offers transparent, reliable, and quick financial solutions, with e-Transfers sent to your bank account in 2 minutes. Visit the iCash short-term loan page today to explore your options and take control of your financial future!
