Home Loan

Difference Between Short Term and Long-Term Home Loans


Term loans are loans from lenders or banks with a set term and repayments paid over a certain time in easy instalments. Depending on the user and the bank contract, the terms of a personal line of credit could be anywhere from 30 days to 30 years. The interest rate on a term loan might be fixed or variable. Term loans are split into two types based on their tenure: short-term and long-term loans. The ultimate personal loan sum taken and the sum of interest due are determined by whether the loan is short-term or long-term.

What is the Difference Between Short-Term & Long-Term Loans?

Short-term and long-term personal lines of credit are terms used to describe how long a loan must be repaid. A short-term loan is often expected to be repaid in a few weeks to a year.

A long-term loan, on the other hand, may have a payback period of several years, for example, 10–15 years. A short-term loan is typically associated with a person’s need for money quickly and in a small amount.

Cash advance debts and loans obtained from peer-to-peer lending are short-term loans. Long-term loans are often needed for larger sums of money or loans requiring significant transactions, such as home-buying personal loans.

Some loans can be long-term, short-term, or somewhere in between. A motor loan is an instance of this, which might be huge or small based on the cost of the motor.

Factors to Consider for Short-Term and Long-Term Home Loans

When asking for a home loan, folks must carefully consider the length of the loan since the length of their home loan impacts their monthly EMI and final interest pay-out. To fund the house, you may pick between a short-term and a long-term home loan. The decision between a long-term and short-term personal line of credit is affected by the following factors:

  • Monthly salary

The length of their home loan determines people’s monthly payments. A long-term house loan would result in cheaper EMIs, while a short-term house loan would result in higher EMIs. Folks must check that the EMIs are fair and do not exceed 30 to 35% of the monthly salary. This will allow folks to repay their home loan and pay other costs without issue.

  • Age

Age is vital when selecting whether to take a long-term or short-term personal loan. If users are in their twenties and have just begun their job, they might consider getting a long-term house loan. As they acquire professional expertise, their monthly salary is more likely to rise, making it easier to repay the debt. If people are already in their late 40s or early 50s, they will have little choice but to take out a short-term home loan. Banks only issue home lines of credit until retirement or for up to 20 years.

  • Interest Rates

Before deciding on a long-term or short-term home loan, it must be discovered if the interest rate is fixed or flexible. A fixed interest rate does not change, regardless of market rates. A flexible rate, on the other hand, changes based on market trends. Short-term loans may have lower interest rates than long-term home loans since lenders see a smaller risk and higher EMIs in a short-term loan over the other option.

  • The Aim of Buying

A short-term home loan might be better if the user wants to buy a house for business goals. Borrowers who buy a home for personal use might choose a longer payback time. This will cut their home loan EMIs and, as a result, the chance of default. As a result, folks may live properly in their homes while repaying their debt.

With these factors in mind, users may grasp the risks of both a long-term and a short-term house loan. Do they want to be free of the stress of EMI payments sooner? They should choose a short-term mortgage. However, folks must be prepared to pay larger EMIs despite a lower total interest sum. If folks cannot afford larger EMIs, they should opt for a long-term house loan. As the interest paid rises, they can pay smaller EMIs.

Difference Between Short Term and Long-Term Home Loans

FactorsLong-term loanShort-term loan
Debt periodMost home loans are long-term, protected loans. The asset-backed property cannot remain wholly in the lender’s name until the loan is fully repaid. The asset is secured for a longer period of time.Short-term loans are often devoid of security. If security is required, the asset might be free of collateralization in a  short time.
Tenure of loanTenures are often longer than 5 years. The maximum term is 30 years.Tenure is often 5 years or less.
The interest rateLong-term personal loans have lower interest rates since repayment spreads over many years.As short-term loan payback terms are short, banks charge higher interest rates to adjust.
The rate of paymentLong-term loans can take longer to grant since banks must fully assess a lender’s reputation and repayment ability.Short-term loans are granted quickly since they are for lower loan sums and require less paperwork.
EMILong-term loans provide lower monthly EMI payments.Short-term loans must be returned soon, so the EMI is often high.

Which Loan Must Users Take Out: a Long-Term or a Short-Term Loan?

There isn’t one correct choice when deciding between a short-term and long-term loan. The choice between the two is based on one’s need and capacity to repay. A long-term loan is the finest choice for debtors seeking easy payments without financial hardship. On the other hand, short-term personal loans are suitable for people who want a quick line of credit pay-out and are willing to endure a high-interest load.

It is vital to recall that an applicant’s age affects line of credit eligibility. As retirement age nears, it may be hard for people in their late 50s or 40s to get a 20 or 30-year loan, because banks may see them as more likely to not pay back the loan.

Final Word

To sum up, borrowers must select a home loan term that fits their repayment ability! A home equity line of credit represents a secured personal line of credit in which the purchased property is collateral. As a result, if users default on their home loan, the bank may take their home to recoup the loss. Choosing a term that allows people to make their EMIs low will reduce their chances of failure. Folks may also use an online EMI calculator to get an idea of their home loan EMI.

Piramal Finance has similar blogs for people to help them get a personal line of credit. Give the blogs a read and check out the other services they offer.