Difference between short-term and long-term financing – Bajaj Finance Limited (2024)

Understanding the difference between short-term and long-term financing is essential for making wise decisions. These financing options cater to different needs, providing solutions for immediate concerns or long-term aspirations.

What is short-term financing?

Short-term financing, applicable within a year, acts as a quick solution for pressing personal requirements. It helps address sudden expenses, manage monthly bills, or tackle unexpected financial challenges. Sources for personal short-term financing include credit cards, payday loans, or personal lines of credit. The advantages lie in quick accessibility, flexibility, and a lower overall cost due to the shorter repayment period.

What is long-term financing?

Long-term financing goes beyond a one-year timeframe and is suitable for substantial personal investments. This could involve financing education, purchasing a home, or starting a business. Sources for personal long-term financing may include traditional bank loans, mortgages, or personal loans with extended repayment plans. While offering stability and strategic planning, long-term financing involves a more extended repayment period and potentially higher overall costs.

Here are the key differences between short-term and long-term financing

  1. Duration:
    The most evident differencebetween short and long-term financingis their duration. Short-term loans normally have a repayment duration of year or less, though some might be as short as a few weeks or months.
    Long-term loans, on the other hand, have a longer repayment period, which might last several years. These loans are often used to cover larger investments, such as real estate purchases, personal loans for travel, or business expansions. The prolonged-term allows for reduced monthly payments, making it easier for borrowers to repay the loan over time.
  2. Interest rates:
    Short-term loans often have higher interest rates compared to longer-term loans. This higher interest rate reflects the perceived increased risk for lenders associated with shorter repayment periods. Lenders, in turn, charge higher interest rates to account for the faster turnaround and potential uncertainty in short-term financial obligations.
    Long-term loans often have more affordable interest rates due to the extended repayment duration. The lower interest rates give borrowers with more favourable financing arrangements during the loan. Long-term financing's consistency and predictability reduce the risk for lenders, allowing them to provide more competitive interest rates.
  3. Purpose:
    Short-term loans typically address immediate financial demands. Borrowers may utilise them to manage cash flow changes, meet seasonal demands, or capitalise on time-sensitive opportunities. Individuals may seek short-term loans to meet unexpected needs or fill gaps between paycheques.
    Long-term loans, on the other hand, are secured for longer-term, strategic goals. Long-term financing is frequently used by businesses to fund large-scale investments such as equipment acquisitions, facility expansions, and product launches.
  4. Repayment structure:
    Short-term loans typically include a repayment schedule that includes frequent and smaller installments over the loan's shorter tenure.
    Long-term loans, on the other hand, typically have a more organised repayment schedule that includes larger, less frequent payments. The longer repayment period enables more reasonable monthly payments, making it possible for borrowers to repaylarger loan amounts over time.

Finally, the choice between short-term and long-term loans is determined by the borrower's individual financial circ*mstances. Understanding the differences between these two types of loans is critical for making sound financial decisions and ensuring that the financing selected is consistent with the borrower's overall financial strategy.

Bajaj Finance Limited provides personal loans with substantial loan amounts that can be repaid over longer periods ranging from 6 to 96 months.These funds can be used for a variety of purposes, including loan for health care, personal loan for wedding, personal loan for higher education, and home modifications.

Apply to get the best personal loan deal.

Difference between short-term and long-term financing – Bajaj Finance Limited (2024)


Difference between short-term and long-term financing – Bajaj Finance Limited? ›

Interest rates:

What is the difference between short term financing and long term financing? ›

Short-term loans normally have a repayment duration of year or less, though some might be as short as a few weeks or months. Long-term loans, on the other hand, have a longer repayment period, which might last several years.

What is the difference between short term and long term debt financing? ›

Short-term financing is typically used to cover short-term needs like materials purchases, inventory, and cash flow fluctuations. Long-term financing is typically credit extended for periods over two.

What is the difference between a short-term loan and a long term loan? ›

Short-term loans come with a repayment tenure between 1 to 5 years. In case of long-term loans, the loan tenure may vary between 10 to 20 years. The longer repayment tenure, therefore, allows a business to distribute the repayment over a longer period.

What is the difference between Bajaj Finance Ltd and Bajaj Finserv? ›

Is Bajaj Finance and Bajaj Finserv same? No, Bajaj Finance Limited is a subsidiary and the lending arm of Bajaj Finserv. It deals in consumer finance, commercial lending, and wealth management.

What is the difference between short-term and long-term? ›

Short-term goals are likely measured by weeks, months, or quarters. Long-term goals can be measured by years and may have an undefined timeline. It is much easier to achieve short-term goals because you can easily see progress. Long-term goals are difficult and require patience as there is no immediate obvious payoff.

What is the difference between long-term and short-term interest? ›

The major difference between a short-term interest rate and a long-term interest rate is the length of time it takes to pay back the loan. Also, long-term interest rates are usually higher than short-term interest rates. These interest rates indicate whether the economy is working as it should or not.

What is the main difference between short-term and long-term financing quizlet? ›

the difference between long- and short-term finance is the amount of time that the company requires the financing for. short-term finance is finance needed for a maximum of 1 year, whereas long-term finance is needed for more than 5 years.

What is the main difference between short-term and long-term capital assets? ›

Profits you make from selling assets you've held for a year or less are called short-term capital gains. Alternatively, gains from assets you've held for longer than a year are known as long-term capital gains.

What's the difference between short and long-term liabilities? ›

Long-term liabilities are typically due more than a year in the future. Examples of long-term liabilities include mortgage loans, bonds payable, and other long-term leases or loans, except the portion due in the current year. Short-term liabilities are due within the current year.

Why do banks prefer short term loans? ›

These loans are considered less risky compared to long term loans because of a shorter maturity date. The borrower's ability to repay a loan is less likely to change significantly over a short frame of time. Thus, the time it takes for a lender underwriting to process the loan is shorter.

Why long term loan is better than short-term loan? ›

Lower Interest Rates: Long-term loans generally come with lower interest rates, making them more affordable over time compared to short-term loans. Larger Loan Amounts: If you have a significant financial goal, long-term borrowing allows you to access more substantial sums of money.

What is an example of a long-term financing? ›

Long-term finance can be defined as any financial instrument with maturity exceeding one year (such as bank loans, bonds, leasing and other forms of debt finance), and public and private equity instruments.

What are the short-term financing? ›

Short-term financing means taking out a loan to make a purchase, usually with a loan term of less than one year. There are many different types of short-term financing, the most common of which are “Buy Now, Pay Later,” “Unsecured Personal Loans,” and “Payday Loans.”

What is a short-term and long-term financial decision? ›

Short-term financial decisions can be called operating decisions if they cover a period of up to 1 year. The purpose of these decisions is to obtain the maximum possible effect with the existing business profile and a stable capital structure. Long-term financial decisions relate to investment practices.

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