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What are Advantages and Disadvantages of Long-Term Loans

Long-Term Loans
A long-term loan is taken for a prolonged period to suit the borrower’s convenience and capability to repay the loan amount.  Long term loans are mainly preferred while taking a home loan, business loan or a personal loan for personal purposes such as wedding expenses, medical emergency, debt consolidation etc. The period for a long-term loan lasts from 5 years to 25 years of time.
 
Hence, a long term loan procures many advantages for the future. The amount of loan you can borrow with relatively low installments to pay is the most important thing in a long-term loan. There are some major advantages of long-term loans mentioned below:
 
 
  • Lower interest rate - Long term loans are offered on a low interest rate because the borrower commits to repay the loan over a period of time, meanwhile the lender also reaps profits in the form of interest over such a long tenure.
   
  • Hassle-free application process - Online loan application process has made long term loan application process hassle-free. Within a few minutes your application is submitted and verified instantly.
   
  • Tax benefits - Some long-term loans have the benefit of tax exemption. Home loan is one such loan product that offers this benefit.
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Long Term Loan Disadvantages
 
We cannot deny the fact that long term loan have various disadvantages. Here are few disadvantages of long-term loan that borrowers should be aware of:
 
 
  • Cash Flow- A major drawback of long-term loan is that it affects your monthly cash flow. The higher your loan, the more you commit to repay each month. Hence, it is advisable to take long term loans only during emergencies.
 
  • Collateral Risk- Most long-term loans demand a security or a collateral. Borrowers often mortgage a property as security to get the required finance, especially at reasonable interest rates. The interest rates for secured loans may be lower than unsecured ones, but your assets or home could be at risk if you cannot make the repayments.
 
  • Credit Score- In case the long-term loan EMIs are missed, delayed or defaulted, the credit score goes down drastically. This affects future loan sanctions.
 
Both short and long-term personal loans are multi-purpose loans that borrowers can acquire with a set of personal and income documents. Decide which loan type suits your financial requirement and apply for a loan accordingly. Check the eligibility criteria before filling the loan application form.
 
Eligibility for Long Term Loans
 
Different financial companies and lenders have different eligibility criteria for long-term loans. The general eligibility criteria require:
 
 
  • Borrower should be between age of 21 to 58 years
  • Salaried or Self-Employed borrowers can apply
  • Employees of public and private limited companies can apply
  • Borrower should be an Indian citizen
  • Minimum income requirement of Rs 15,000 per month or above

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Did You Know

Disbursement

The act of paying out money for any kind of transaction is known as disbursement. From a lending perspective this usual implies the transfer of the loan amount to the borrower. It may cover paying to operate a business, dividend payments, cash outflow etc. So if disbursements are more than revenues, then cash flow of an entity is negative, and may indicate possible insolvency.

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