Personal Loans Can be Short Too
When thinking about short-term cash loans, the word “”short”” covers a very large time frame. Some personal loans start at periods as short as a year and most are below five, but in terms of lending, that is quite a small period.
Personal loans with most banks and finance companies are very similar with their loan terms. A typical personal loan will start at one year and go through to about 5 years. There are exceptions to this, but that is how long a typical personal loan will be. Five years seems like a long time to be calling short-term, and it only really becomes short when it is put into context with a long-term loan, like a mortgage.
Mortgages are typically 15 or 30 years, and so in comparison to that, a 5 year loan does seem short-term.
A typical rule of loans is that the shorter the term, the higher rates you will have to pay. This will vary through financial institutions: for example, if you try and compare a personal loan from a bank with a 5 year term to a loan from a financial provider with a 4 year term then you might find that the 5 year rate from the bank is still competitive with the 4 year. This is because banks tend to lend money to people with a better credit rating; and the better credit you have, the better interest rate you are likely to get.
If you compare rates to loan periods within one institution, then you will find that the shorter the loan period, the higher the interest rate. If it wasn’t like this, then lenders wouldn’t offer short-term loans, because they would not be profitable.
If you want to see this first hand, then head over to www.interest.co.nz click through to their borrowing section and then compare the mortgage interest rates of the banks to their personal loans rates. For example, ANZ has a floating rate on their mortgage of 5.74% and on their personal loans they have a rate of 17.95%, a number almost triple to that of the mortgage.
The huge gap in interest rates is because a personal loan is a short-term loan, an interest rate like that isn’t sustainable over anything other than a short period of time.
Short-term loans are not limited to pawn shop loans or payday advance loans, these types of loans could almost be called micro loans. Such loans can be a convenient solution to short-term cash shortages.