When exploring the options through which a person can raise money, long term loans are becoming a more popular choice as compared to others. While short term loans and other loans have not been discontinued, more people are attracted towards long term loans despite the fact that it can have a high interest rate in some scenarios.
As a means of getting access to necessary money, the following are a few reasons why people are getting attracted to long term loans to fund their business plans and dreams.
Long Re-Payment Time Period
Long term loans make it possible for someone to repay the loaned amount over a time period that could be as low as 1 year and go up till 20 years. With a monthly re-payment rate, it becomes possible for someone to pay back the amount the borrowed with ease. The long term loan’s repayment schedule actively works for people, who have trouble making payments and would have otherwise ended up defaulting on their repayments.
Cheaper Interest Rate
As compared to short term loans, the interest rate in long term loans is cheaper and more affordable for people. Moreover, the large time period and the low monthly rate make it possible for a person to easily make their payments. Fluctuations in the market can make an impact on the interest rate but it is usually affordable and falls back once the market is stabilized.
Possible to Raise Larger Amounts
Since long term loans are fixed loans, they can be used to raise a large amount of money that would have been a bit impossible for the person to have access to otherwise. With the help of a long term loan, a person can easily end up raising a maximum of almost £75,000. On the other hand, short term loans or unsecured loans only allow one to borrow a total amount of £35,000. However, one does need to have an asset that can be used as collateral to raise the amount.
Bad Credit Doesn’t Affect You Severely
When applying for a long term loan, a person’s credit history does get taken into consideration but it doesn’t make them ineligible for the loan if it is bad. While it can involve having to give the lenders other assurances that they will not miss the scheduled repayments, a person can easily walk away with the amount they needed.
The downside though is that they might get a higher interest rate than they would have gotten otherwise. This happens because their bad credit score makes lenders see them as a liability and loaning money to borrowers with bad credit exposes them to a certain amount of risk.
Great for Start-ups and Small Businesses
For small businesses and start-ups, a long term loan is a great way to raise seed money without any investors. Moreover, it also helps put the financial plan into perspective as borrowers have to present a financial plan to the lenders in order to show that they have a strong plan that can help them turn the extra resources into viable returns as soon as possible.