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Long Term loans
Long term loans are taken for a prolonged period of time. Taking a loan is something that has occurred to us all at some point in time of our lives. Sometimes that thought becomes a reality whiles other times due to some circumstances or reasons that idea is squashed.
Some people are spontaneous and as the thought occurs starts making preparation to go for the loan. For others thinking through the decision takes a longer time.
Just in case we are not sure what a loan is, it is an amount of money given out by a lender to a borrower for a period of time with the intent of receiving the money back at the specified time plus interest.
There are so many types of loans but all these loans are categorized into two major types. Short term loans and long term loans. For the purpose of this article, we will be focusing on long term loans.
Both categories of loans come in handy at specific times in peoples lives. And serves specific purposes for borrowers. With long term loans, there is a variety available for borrowers and for their specific needs.
Examples of long term loans are business loans, mortgage loans, student loans, home improvement loans etc.
Having a good credit history is the best when it comes to getting long term loans. This is because with a good credit score the interest rates on the loan are not high and sometimes a borrower is able to bargain for better interest rates.
Having said that, borrowers who don’t have good credit scores can also get long term loans the only difference will be that the interest rates will be very high and the probability of being rejected is also high.
Long term loans break down
Long term loans can be divided into two categories. The secured and unsecured loans. The difference between these two categories is that with the secured long term loans, the borrower must have collateral put in place of the loan. The collateral can be in the form of cars, houses or any priced possession like jewels.
Unsecured long term loans, however, are the opposite of secured loans. There is no collateral attached to the loans. What borrowers must know interest on loans for secured loans is much lower to unsecured long term loans. Reason being that the unsecured loans don’t have any collateral attached to them so are much riskier to the lender than the secured loans.
When a borrower defaults in paying back the secured loan, the lender has the right to sell the collateral to offset the loans. Largely, borrowers can get long term loans from the traditional banks and non-bank financial institutions including credit unions.
Short term loans can be from sometimes the bank’s financial institutions, credit unions as well as mainly from alternative lenders such as private lenders. The flexibility that comes with repayment of long terms is why most lenders prefer that to short term loans.
For example, the interest on a long term loan is fixed all throughout the tenure of the loan and the amount to be paid is also divided equally for payment every month till the loan is paid off. When interest rates go up, what most lenders do is adjust the tenure instead of increasing the interest rate of a loan already taken.
One good thing about long term loans is that a borrower is able to build his or her credit especially when payments are on time as stated in the agreement.
What to consider when going for a loan
Going for a loan is a big deal especially because it affects your financial status sometimes positively other times negatively. So a lot of thoughts must go into making that decision. Because once a borrower appends his or her signature to the agreement, it will be difficult going back.
And it is important to note that defaulting in repayments of loans means the borrower is in trouble with the lender especially when the lender has not been given any reason for the delay.
Below are a few considerations a borrower must think of before going for a loan. These are stated in no particular order.
Are there hidden charges?
Most lenders do put all their charges on the agreement form. The trick, however, is that the charges are almost invisible or are written in some corner of the agreement.
This is mainly to avoid borrowers from seeing all the charges associated with the loan. As a borrower make sure that before you finally accept the terms and conditions of a loan, you have read all the fine prints on the agreement.
Example of charges which are mostly hidden by lenders is repayment charges which can be on the high side for some lenders.
What is the interest rate of the loan?
There is no loan without an interest rate so checking to know what is the interest rate it must be one of the most important things to consider before deciding to take a loan.
Sometimes the interest rates are reasonably low but with a very long tenure for the loan. It can be a way of the lender to have you paying them for a long time which can be almost like taking a loan with a high interest rate.
So what to check or be aware of is the tenure of the loan per the interest rate. If you are comfortable with the rate then you can go ahead to sign the agreement.
Tenure of loan
Every loan has a time that it is serviced, be it short-term loans or long term loans. Borrowers who know they are capable of paying off some of the long term loans quicker do have an agreement with the lender.
This agreement is done when it is requested for by a borrower, though that is not the norm. If there is an option for early repayment and you know you can afford that, it will be best to discuss that option with your lender.
Not forgetting to ask if the early repayment will incur a charge or will affect the interest rate of the loan taken.
Ask if the interest rates are fixed or floating
Getting to know if the rates are fixed or floating on a loan is very important. This is because if the interest rate changes it will affect the repayment amount. Knowing the rate will help a borrower budget for a loan. Having a fixed interest rate means you will know how much you will be paying at the end of a month for a loan.
It automatically means that if it is floating, the amount will change therefore budgeting will be difficult. With a floating loan, the economy can determine if the rates will go up or come down. Unfortunately, the rates hardly come down, they always go up.
Benefits Of Long Term Loans
Some of the questions you might have asked yourself are why should I take a long term loan. Won’t I be stuck with the loan for too long? Because typically long term loans can last between 2 to 10 years or even more. There are definitely benefits to long term loans, let us just discuss a few.
Monthly repayments are lower
With short term loans, the repayment is in bulk which always affects one’s budget considering the charges on such loans are high. But with long term loans, the repayments are spread over quite a period of time.
This gives the borrower time to pay off the loan gradually without the amount affecting his or her budget, that much. With lower repayments, the borrower is able to make the repayments part of his or her monthly budget so it makes it easier to manage.
Helps in funding big projects
If you intend to work on a big project and need a large amount of money to fund it, a short term loan is not for you. Because short term loan lenders only give small amounts of money which are possible to pay at a go.
An example is starting a business and needing money to begin. A long term loan will offer you the amount needed plus enough time to get the business on course to be able to pay back in bits.
The same theory applies to want to buy a car, you can get enough money to buy the car you want and will pay gradually.
Terms of payment are longer
The loans long term loans have longer repayments time and offer the borrower quite some time to pay back without stretching the budget. The borrower does not have to immediately start thinking of paying back all the loan at the end of the month almost immediately after getting the loan.
Having a longer time to pay off loans enables the borrower to realistically and more importantly, comfortably pay back the loan. Unlike short term loans where borrowers are somewhat forced to default because of the huge dent, it puts in their pockets or budgets.
Building Of Credit
All long term loans have a very well organized process for payment calculated to meet the budget of the borrower. If everything goes as projected and nothing comes up to disrupt the payment schedule, a borrower will build good credit.
Business owners can also take advantage of this type of loan to build their credit since business relies on credit, building a good one can help with getting credit in the future.
Since being creditworthy is almost like collateral for some lenders, it will go a long way to help in acquiring more credit in the future.
Getting a long term loan for business
Obtaining loans to start a business by start-up companies have proved to be a very difficult task. Being in business for a number of years as well as being successful gives a business an upper hand over someone who is yet to start a business when it comes to obtaining loans.
What the banks and financial institutions normally request from the businesses are to produce their business plan as well as their business financial statements which start up business do not have.
To add to that the business is asked to produce documents on how they will fare during the year in order to be able to pay back the loan. Startups cant produce such forecast when they haven’t started the business.
Fortunately for business, the online lending business has so many options available. Each loan offer online is different from each other. Different rates, charges, tenure etc.
When looking at a loan for business don’t just look at the interest rates but very important stuff like the length of the loan because how much a borrower pays with regards to loan repayments is important. The lender is a bit reluctant to loan to start up businesses because they do not know whether the business will flourish or not.
To the lenders when the loan takes longer, the probability that the startup will not be able to pay back should in case they also shut down midway. It will mean the loan cannot be seen to the end.
Trying to get a loan without collateral is easier compared to taking a loan without collateral.
A few advantages of long term loans
Building credit for business
Taking a long term loan and paying on time as in the agreement is a way to build a business’s credit history. This will go a long way to help the business get a much bigger loan in future due to the creditworthiness.
This gives a lot of lenders believe in the company so that giving loans to the business won’t be as difficult as it was when the business was looking for a loan in the beginning. What most first-time start-up company’s do is to use the credit report of its owners to seek the loans.
So when the credit is built for the company, the business can depend on its own credit score to look for credit instead of depending on owners personal credit.
Long term loans are flexible
The flexibility of long term loans has to do with the repayments of the loans. Due to the tenure of long term loans, the borrower has a relaxed way to pay back without stressing.
There is stability
Because of the organized way of repayments of long term loans, it helps borrowers plan ahead and also give the budget of a borrower some stability.
This is mostly the case if the interest rate is fixed.
Even with a flexible interest rate for long term loans, borrowers are already aware so it won’t come as a surprise. Fortunately for flexible interest rates for long term loans, the interest rates can be reduced. Rarely happens but a very possible scenario.
Some of the downsides of long term loans
Debt becomes excessive
Taking long term loans can be a very good idea. However, it sometimes becomes a bit expensive to pay back. This is because the longer the loan the more money the borrower is likely to pay. Making a repayment plan before the loan is even taken can help manage the situation a bit better with regards to a borrowers budget.
Lenders ask for collateral
Borrowers can get long term loans without collateral, however, that means a borrower has to be creditworthy to be sure of getting the loan. Lenders are more comfortable lending to businesses and individuals who request for secured loans because they can always fall on the collateral in the case of a default.
Interest rates become high
One of the concerns for long term loans is the length of time the loan last. The longer the payment span the higher money will be paid. Although normally long term loans have lower interest rates, the tenure of long term loans makes its almost the same as loans with higher interest rates. The good thing is that it gives lower repayments so doesn’t put a ditch in the borrowers budget at the end of the month.
Charges and fees charged can make repayment a bit high
Loans have charges apart from the interest rates. As a borrower, it is your responsibility to make sure to read all the agreement so as not to miss out on any information stated in the agreement. Every fee charged adds up to the payment of the lender and so must not be taken lightly.
Some of the loans borrowers should look out for are insurance fees, early repayment fees, application fees in some cases late charges and settlement fees.
Being creditworthy is key
Having a credit report that has a good score is one of the reasons why a lender will consider giving an individual or businesses a long term loan. Being creditworthy means the borrower can be trusted to pay back the loan on time and at the agreed date.
Long term loans for bad credit
Most lenders are careful who they lend to as well as the amount they lend to borrowers.
What can easily deter a lender from giving a loan to a borrower is when the lenders find out the borrower has bad credit.
Having bad credit and looking around and trying to get a long term loan is tough and most of the time does not materialize.
This is because the traditional banks and non-bank financial institutions always check for the creditworthiness of an individual or business from the credit bureaus.
And if it shows your credit is below the desired number, the banks and other financial institutions try to stay away from you since you are a risk to their business.
These institutions immediately see you as an individual or business that they must not conduct business with. Trying to save money each day or even every week will take a very long time to come up with the amount of money needed to buy or start any business.
Long term loans are usually installment loans
As the name suggests, installment loans mean the loans are paid in bits at a particular time and a particular amount. The loan is usually spread over years. It sometimes ranges between two to ten years or even more.
The kind of installment loan you go for will determine the amount and length of time for the loan. Mortgages are usually taken over a very long period of time as compared to personal loans.
Long term loans are a much better loan which helps most borrowers because of the flexible tenure. Borrowers are able to pay off the loans without much stress due to the structure of the loan. Furthermore, long term loans help individuals and businesses build their credit with the payment of the loans.
Fortunately, there are so many lenders including the traditional banks and non-bank financial institutions who give long term loans.
Having a very good credit score or collateral is a sure way to getting a long-term loan from most lenders.
Disclaimer: All loans offered through this website are subject to credit and underwriting approval. AfterLoans.ca is a lead referral company, not a lender. AfterLoans only works with financial service providers that adhere to Canadian laws and regulations. Our lenders lend from $500-$5,000. Loans amortization is between 6-36 months. APRs range from 19.99% to 55%. The actual APR charged will depend on the lender’s assessment of your credit profile. For example, on a $1000 loan borrowed for 12 months at 29.9%, the monthly payment will be $97.24; with a total repayment, including interest, of $1166.88 There is also lender’s optional loan protection policy. In the event of a missed payment an insufficient funds fee of around 45$ may be charged (dependent on the lender). If you default on your loan payment plan the lender may terminate the plan and the remaining balance will become payable immediately. Our lenders employ fair debt collection practices, but will pursue the payment of Outstanding debts to the full extent that Canadian law allows.