What are the Advantages and Disadvantages of Long-Term Loans?
Taking a long-term loan can be a practical way to meet major financial needs. It can be a car loan, housing loan or a small business loan. These loans offer extended repayment periods, making the monthly instalments easier to manage. However, it is essential to understand the disadvantages and advantages of long-term loans before applying. Also, knowing the loan tenure, loan interest rates, and repayment options can help you make informed borrowing decisions.
Advantages of Long-Term Loans
Some major advantages of long-term loans are:
- Attractive interest rates – Long-term loans often come with competitive interest rates because the borrower repays over an extended loan tenure, and the interest paid across these years gives the lender steady earnings.
- Simple eligibility criteria – The loan eligibility for a long-term loan is similar to applying for a Personal Loan online. Lenders usually check the borrower’s personal and professional details and the required proofs before loan approval.
- Hassle-free application process – The online loan process has made long-term loan applications quick and hassle-free.
- Build credit – A long-term loan offers a good opportunity to build and improve your credit score and financial situation by making timely EMIs.
- Tax benefits – Some long-term loans, such as a housing loan, offer tax exemptions, reducing the overall cost of the loan.
Long-Term Loan Disadvantages
Here are a few drawbacks long-term loans:
- Cash Flow – Higher loan amounts mean a greater monthly commitment toward repaying the loan. It is wiser to choose long-term loans only when the need is urgent or unavoidable.
- Collateral Risk – Most long-term loans require security, and a collateral-free loan is uncommon. Borrowers often mortgage a property as security to get the necessary finance, especially at competitive interest rates. While secured loans may offer lower loan interest rates, your assets or home could be at risk if you cannot meet your loan repayment tenure.
- Credit Score – If the EMIs on a long-term loan are missed, delayed, or defaulted, the individual's credit history suffers. This can affect loan approval for future financial needs.
Both short-term loans and long-term loans are multi-purpose loans that borrowers can take as per their need. However, it’s essential to check the eligibility criteria and understand your repayment options before applying for any loan online or offline.
Types of Long-Term Loans
Long-term loans are available in different forms depending on your needs. Knowing the types can help you choose the right one:
- Housing Loan – These loans usually come with extended repayment periods and competitive interest rates, making it easier to manage big payments.
- Auto Loans – These loans have manageable loan tenures, so monthly payments are easier to handle.
- Business Loans – These loans offer higher loan amounts and help with expansion, buying equipment or working capital. However, small business loans may not offer flexible repayment options.
- Education Loans – These loans usually come with lower interest rates and longer repayment terms, so students and parents can repay comfortably.
Knowing the type of loan that suits your needs can make borrowing safer and easier.
Eligibility Criteria for Long-Term Loans
Different lenders have slightly different requirements, but the general eligibility criteria for a long-term loan usually include:
- Both salaried and self-employed individuals can apply.
- Employees of public or private companies are eligible.
- The borrower must be an Indian citizen.
- A minimum monthly income is usually required.
Checking these criteria before applying can save time and increase your chances of loan approval. It also helps you understand your loan eligibility and plan your loan repayment tenure better.
How to Apply for a Long-Term Loan
Whether you need a housing loan, a car loan, or a small business loan, applying for a long-term loan is now easier, especially with the online loan options available today. Here's a step-by-step guide:
- Check the eligibility criteria to ensure you meet age, income, and employment requirements.
- Use a loan EMI calculator to estimate monthly payments and plan your loan repayment tenure.
- Fill and submit your application with the required documentation. The loan approval process is often quick and hassle-free.
- The lender reviews your application and may request additional details if needed.
- Once approved, the loan amount is disbursed to your account.
Interest Rates and Loan Tenure
Loan interest rates and repayment tenures play a major role when choosing a long-term loan. Most loans come with lower interest rates, which help keep EMIs manageable. Loan tenure may go up to 15 years or more. A longer tenure lowers monthly payments but increases the overall interest paid.
For example, self-employed individuals can get a Loan Against Property from Hero FinCorp of up to Rs 7.5 crore at attractive interest rates starting from 11% per annum, with a loan tenure of up to 15 years.
Prepayment and Foreclosure Charges
Many long-term loans let you pay off the loan before the scheduled loan repayment tenure. This reduces the overall interest paid, but lenders may apply prepayment or foreclosure charges to recover part of the lost interest. Always review these charges before applying.
We at Hero FinCorp allow borrowers to make part-prepayments or foreclose their Loan Against Property, with charges that vary based on the borrower profile and loan type. Reviewing these details in advance helps you plan better and avoid unexpected costs during repayment.
Long-Term Loan vs Short-Term Loan
Let’s look at the key differences between long-term and short-term loans:
| Feature | Long-Term Loan | Short-Term Loan |
| Loan Tenure | Up to 15 years or more | Usually up to 3 years |
| EMI Amount | Smaller monthly EMIs | Higher monthly EMIs |
| Interest Rates | Often fixed interest or competitive interest rates | Generally, higher loan interest rates |
| Loan Amount | Can provide higher loan amounts | Usually smaller amounts |
| Repayment Period | Longer loan repayment tenure | Shorter repayment period |
| Purpose | Housing loans or a small business loans | Quick loans, including Personal Loans |
| Impact on Cash Flow | Easier to manage monthly payments | Can strain the monthly cash flow |
| Prepayment/Foreclosure | May involve charges, but reduces overall interest | Usually, fewer charges, but less benefit from early repayment |
Conclusion
Long-term loans offer the advantage of smaller monthly EMIs and extended repayment periods, making large expenses more manageable. However, borrowers must consider loan interest rates, prepayment charges, and eligibility criteria before applying. Understanding the benefits and drawbacks helps you make informed decisions and choose the right loan type for your financial needs.
Frequently Asked Questions
What is a long-term loan and how does it work?
A long-term loan is borrowed for major expenses and repaid through smaller EMIs over an extended loan tenure, with interest paid across the entire period.
How long is the tenure of a long-term loan?
A long-term loan can offer a tenure of up to 30 years, which lowers monthly EMIs but increases the overall interest paid over time.
What are the main advantages of taking a long-term loan?
Long-term loans offer lower EMIs, higher loan amounts, extended repayment periods, and possible tax benefits, while also helping borrowers build a stronger credit history.
What are the risks or disadvantages of long-term loans?
Long-term loans can strain monthly cash flow, require collateral, increase total interest paid, and may include prepayment or foreclosure charges if you repay earlier than planned. They may impact your credit score and financial situation if EMIs are delayed.
Can I prepay a long-term loan early?
Yes, many long-term loans allow early repayment. However, lenders may charge prepayment or foreclosure fees. Always check the terms before applying.
What eligibility criteria do I need to fulfil to get a long-term loan?
To get a long-term loan, you must meet basic age, income, and citizenship criteria, and be either salaried or self-employed depending on the loan type.
What is the difference between long-term and short-term loans?
Long-term loans have longer tenures, lower EMIs, and suit big needs like housing or business. Short-term loans run 12–36 months, have higher loan interest rates, and are used for quick personal or emergency expenses.
How do interest rates vary for long-term loans?
Loan interest rates depend on the loan type, lender, and tenure. Long-term loans usually offer fixed or competitive interest rates, keeping EMIs predictable, though longer tenures increase overall interest paid.
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