Short vs long term personal loans: How to choose the right one?   

Short vs long term personal loans: How to choose the right one?

In personal finance, we occasionally require a little more help to reach our objectives or face unexpected bills. This is when personal loans come in beneficial. Personal loans allow you to access cash when you need it the most, whether you’re paying bills, or making a large purchase. You can also get instant personal loans through RBI-approved apps such as Zapmoney with minimal documentation. It is also essential to choose between Short vs long-term personal loans to meet our Financial needs.

However, when it comes to selecting the best loan for your requirements, one of the most important decisions you must make is whether to take out a short-term or long-term personal loan. Both alternatives offer advantages and disadvantages, and your unique financial circumstances and demands will determine the right choice for you. In this blog, we will discuss about Short vs long-term personal loans.

What is a short-term personal loan? 

A short-term personal loan is intended to be repaid in a relatively short period of time, usually one year or less. These loans are frequently used to pay unforeseen needs, such as medical bills or automobile repairs, or to bridge a short-term cash flow shortage. These loans often have larger monthly payments than long-term loans since the principle and interest are paid off in a shorter period. You will pay less interest throughout the life of the loan since you will pay it off sooner.  

Characteristics of a short-term personal loan:

  • Quick Approval: Short-term loans are authorized quickly, and you can receive the money in as little as a day or two. This makes them ideal for situations where you need cash immediately. 
  • Small Loan Amounts: Short-term loans often range from a few thousand to one or two lakh generally 
  • High-interest rate: The interest rates for short-term loans in India are usually higher than those for long-term loans due to the higher risk involved. This loan has higher interest rates since you repay them sooner. Apps like Zapmoney provide loan interest as low as 18%, compared to other short-term loan providers. 
  • Collateral: Many short-term loans in India require collateral such as property, stocks, or gold, which acts as security for the lender. 
  • Debt-to-income ratio: To manage the outflow of money, your debt-to-income ratio should be low. Short-term loans are cheaper but can affect the debt-to-income ratio as the monthly outflow is high. 

What is long-term personal loan? 

A long-term personal loan is one in which you borrow money and repay it over a longer period of time, usually one to five years or more. These loans are used for larger needs such as home improvements, debt consolidation, or crucial purchases. Because the payback time is prolonged, monthly payments are reduced, making it simpler to manage your finances. The prolonged payback period, however, will result in you paying more in interest over time. 

Characteristics of a long-term personal loan:

  • Lower Interest Rates: Because you pay over time, your interest rate will be lower than short-term loans. 
  • Large loan amounts: Long-term loans allow you to borrow larger amounts, ranging from thousands to several lakhs. 
  • Longer Repayment Period: You have additional time to repay the whole amount, ranging from 1 to 5 years or more. 
  • Purpose: Long-term loans are commonly used in India to finance significant purchases such as a house or a car, as well as to support a business enterprise. 

Differences between Short-term and Long-term Personal Loans 

Factors Long term loans Short term loans 
Loan Tenure Tenures are usually beyond five years. Maximum tenure can go up to 30 years. Tenure is usually five years or under 
Collateral The lenders require collateral, i.e. security from borrowers of long-term loans. In case the borrower defaults, the lender can recover any outstanding dues from the collateralized asset.  Short-term loans are generally unsecured and don’t involve collaterals. Some short-term loans may require an indirect form of collateral, like overdraft facilities secured against fixed deposits, invoice discounting, account receivable funding, etc. 
Interest  Repayment of long-term loans is spaced out over many years and therefore these charge lower interest rates. Since short-term loan tenures are shorter, lenders charge higher interest rates to compensate for the shorter repayment tenure. 
Purpose These loans are frequently used to pay unforeseen needs, such as medical bills or automobile repairs, or to bridge a short-term cash flow shortfall.  Long-term loans, on the other hand, can be used by businesses to finance asset purchases or business expansion or to adopt a growth strategy. 
EMI The monthly EMI payments are lower in long-term loans.  Since short-term loans need to be repaid within a smaller duration, the EMI amount is usually high. 

How to make the right choice between short and long-term loans? 

Picking between a short-term or long-term personal loan depends on a few key things about your situation: 

Why You Need the Loan?

If it’s an emergency expense you need to cover right away, a short-term loan may work best. But if it’s for a larger purchase or project, a long-term loan makes more sense. 

The Loan Amount:

Do you just need a small amount, like for a car repair? A short-term loan for a few thousand could cover it. But for things like renovations where you need to borrow more, a long-term loan allows a higher loan amount. 

Your Monthly Budget:

Look at how much you can realistically afford for monthly loan payments. If you can swing higher payments, a short-term loan works. But if not, go with a long-term loan for lower payments.

Interest Rate Costs:

Compare current short-term and long-term loan rates. Sometimes a slightly higher rate short-term loan makes sense if you can pay it super fast. Other times, a low long-term rate is better if it takes longer to pay off. 

Repayment Timeline:

Think about how soon you want to be done paying the loan. If getting out of debt fast is most important, a short-term loan lets you do that. But if lower payments is the priority, take the longer route. 

Your Credit Score:

Having a higher credit score helps you qualify for better rates and terms on any loan. But it’s particularly important for long-term loans where a lower rate has huge savings over many years.

Read the Fine Print:

Before committing to any loan, make sure to read the terms and conditions carefully. Pay attention to fees, penalties for early repayment, and any other terms that may affect your loan payment. 


The right loan for your needs could potentially save you hundreds or even thousands of dollars. So, it pays to take your time and pick the short or long-term loan that is really the smartest financial fit. 

At the end of the day, your personal situation will determine if a short-term or long-term personal loan works better. But now you know the key factors to consider as you weigh your options. Short-term loans provide fast cash for smaller amounts and let you get out of debt quicker, despite higher rates.  

While long-term loans have lower rates and more affordable payments, but mean you’ll stay in debt for years and pay more total interest. So think through your goals, budget, credit, and what the loans will realistically cost you over time. 

 With some simple math and with the help of Zapmoney you can acquire instant personal loans and find the most cost-effective loan solution that best meets your needs. 


Why choose a long-term personal loan? 

For larger purchases or expenses, when you need a higher loan amount and can afford lower monthly payments over several years.

How can I get the best interest rate? 

Having a higher credit score will help you qualify for the lowest available interest rates on any personal loan. 

What factors should I consider when choosing? 

The loan purpose, borrowing amount needed, your budget for monthly payments, interest costs, repayment timelines, and your credit score. 

Hariharan Ravichandran

Understanding the ever-changing environment of money may be a difficult experience.I'm Hariharan, a seasoned finance explorer and blogger. I am right there with you, beginning on this journey of financial enlightenment as a fellow traveler.


The ZapMoney app makes personal finance easy, accessible, and affordable. The App is available on Google Play Store and App Store for download, allowing you to sign up and access easy personal loans. ZapMoney is powered by Monexo Fintech Private Limited which is a registered NBFC-P2P.
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