Personal Loans vs. Short Term Loans

Life is unpredictable and we all encounter circumstances that leave us looking for financial help to take care of the situation. Financial lenders have a range of products to take care of the borrowing needs of their lenders.

Personal loans and short term loans are popular options for people intending to borrow money. However, the two have different attributes that every borrower should be aware of to make informed financial decisions.

Personal Loans

Personal loans refer to money borrowed to be repaid over a period in monthly instalments for between two and six years. These loans are unsecured as they are not attached to any property. People looking for a large amount of cash prefer personal loans as they provide a long repayment period and usually have a fixed interest rate.

Situations that could require you to borrow a personal loan include home renovations, long-distance relocations, emergencies like funeral expenses and clearing medical bills, purchasing major household appliances, car financing, weddings, among many other reasons. These loans are beneficial, primarily when you can repay the amounts as expected.

Pros of Personal Loans

  • Favourable interest rates- interest rates are friendly compared to other loan products
  • Require no collateral- these loans are unsecured, suitable even for borrowers without properties
  • Fixed interest rates-enabling the monthly repayment amount to remain the same
  • Flexibility-useful for various purposes unlike mortgages and car loans

Cons of personal loans

  • Come with processing fees-usually charged as a percentage of the loan amount.
  • Can create a debt cycle-consolidation of loans coupled with long repayment periods may keep you indebted
  • Early payment penalties-you could be penalized for clearing the loan before the end of the repayment term especially for large loans
  • Legal action for defaulting-the monthly payments are mandatory and defaulting can make the creditor sue

Short Term Loans

Short term loans are usually small amounts of money borrowed and repaid over a short period, usually from one month to one year. These loans are often referred to as quick loans as money is sent to your account in minutes, as long as your application is approved.

Payday loans are a type of short-term loans with an even shorter repayment window, usually one month. These types of loans are extended to salaried workers and are paid from the subsequent salary after disbursal to the borrower.

Pros of Short Term Loans

  • Require no collateral-as the risk involved is minimal
  • Fast processing time-can be obtained online in a matter of minutes
  • Overlook credit score-can be advanced to borrowers with a negative credit score
  • Less paperwork-few formalities involved in the process

Cons of Short Term Loans

  • High interest rates-makes the loans expensive
  • Short repayment period-can lead to defaulting and financial problems
  • Small loan amount-not suitable if you want to borrow large sums of money
  • Can lead to debt crisis-leaves the borrower with little money from the salary after reduction, leading to seeking more loans.

Both types of loans are beneficial products to those who can afford to repay them and proper financial consideration is necessary to make the right choice. Personal loans are ideal for those seeking out lump sums while short term loans are best suited for borrowers of small amounts.


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Warning: Late repayment of payday loans can cause you serious money problems. For help, go to