Banks issue the credit to satisfy personal needs of the borrower. In order to benefit from the operation, the banks charge an interest rate. An interest rate is the price the borrower pay for the loan.
Interest rate differs from one bank to another. It is crucially important to know what interest rate your bank will charge. This rate will greatly depend on what type loan you take. There are two major loans types. These are long and short-term ones.
What are differences between long-term and short-term loans
Time is one of the factors that differentiate short and long-term borrowings. There are there some more things to know:
- short-term borrowing is more expensive. There are many reasons for that. The client pays higher interest rate because he pays fewer months than in case of long-term borrowing.
- short-term borrowing is issued for smaller time than long-term credit. Small term loans can be issued for the period between 1 to 3 years. long-term ones are issued for 5 years and more.
- The client can use credit easier in case of short period borrowing. He can withdraw cash quicker. In case of long period borrowing the client will get in trouble when withdrawing cash. The bank controls such types of borrowings more.
Though these two types of borrowings have much in common, they also have many differences. One of the distinct features is an amount of monthly payment. It, of course, will depend much on how big the borrowing is.
What needs you can take the loan for
People take the loans taking considerations what this money will be used for. For car repairs, travellings small credits are usually more than enough. Mortgages, student loans and borrowings for start-up business are usually long-term loans.
Whatever type of loan you take, it is important that the borrower always fulfills his financial obligations. He has to make the return of the loan to the bank on time. Otherwise, there will be little sense in borrowing. The credit will simply cost too much.
So, it is important to get advised by your banker what type of credit is right for you. Learn all the details of your loan agreement. That is the only way to take the right decision concerning your borrowing.
It is important to remember the client will really enjoy borrowing if he calculates his income and spendings correctly. Otherwise, the borrowing can rather bring troubles than the pluses. So, think twice what type of credit to take.