The world of banking and loans might seem overwhelming. There are short term loans and long term loans. Do you know the difference between the two? Understanding the difference will help you determine which loan is right for your situation when you are in need of money. Breaking down the basics of the long term and short term loan in Arlington Heights will help you better understand the pros and cons of each.
What Are Long Term Needs?
If you are looking for a house or car, chances are your financial needs are large. This predicates the need for a long term loan, such as a mortgage or car installment loan. These types of loans come from your local bank and have a lengthy approval process, including a credit check, as well as financial and asset evaluations, to determine the likelihood of your ability to pay the loan back in a timely manner. You will also have to put up collateral in the event you default on the loan. Your payments are made on a monthly basis and typically last for many years.
What Are Short Term Needs?
If you need funds to make an emergency repair, pay for medical bills or purchase an appliance for your home, your financial needs could be smaller and more immediate. If you foresee this financial need only occurring seldom throughout your life, a short term loan in Arlington Heights is a good choice. This type of loan is not dependent on your credit or assets. It is based upon your income, the job you hold and your checking account status. You do not have to put up any collateral for this type of loan, but you will be expected to pay it back on your next payday via automatic withdrawal from your checking account.
Rates
A large difference between long term loans and short term loans is the interest rate. Because you typically put up collateral for a long term loan, the risk is lower so the bank charges a much lower interest rate. A short term loan in Arlington Heights does not require any collateral, which is why their interest rates and fees are higher to cover the risk involved in the loan.
Before you determine which loan is right for you, take the time to evaluate your situation and determine how long and how often you will need the funds. Also, take into consideration the approval process and how you will measure up when it comes to being evaluated by the bank or short term loan company.
