A loan tenure determines how long a borrower has to repay the principal amount along with interest. It also significantly impacts the monthly EMI and the total interest paid over the loan’s duration.

Therefore, the right tenure requires careful evaluation. Applicants must assess their financial situation, future goals, and existing financial obligations. This helps in optimising finances and ensuring timely loan repayment without the risk of default.

This article will delve into the difference between short-term loans and long-term loans to help borrowers make an informed decision.

Let’s begin by understanding the key factors that differentiate the two loan tenures.

1. Loan Duration

When deciding between a short-term loan vs a long-term loan, time is naturally the first crucial aspect to consider. For home loans, short tenures typically range from 5 to 10 years. These may be ideal if the applicant’s finances are stable and they are confident about making timely repayments. A shorter repayment period can reduce overall interest costs, but the EMIs will be higher.
Longer loan tenures generally range from 15 to 30 years, offering borrowers more time for repayment. These are suitable if the borrower needs time to manage finances and repay the loan gradually. While long tenures reduce the monthly burden, they can lead to higher overall interest payments.  

2. Time to Homeownership

Homeownership is a key aspect to focus on when comparing a long-term loan vs a short-term loan. Choosing a shorter tenure allows borrowers to become homeowners sooner, as they repay the loan in a shorter period. This can be appropriate for individuals who view their home as a long-term investment or a secured shelter for their family.

By choosing a shorter tenure, they can reduce financial liabilities more quickly and achieve financial freedom sooner.

For extended tenures, the loan remains active for a longer period, delaying full homeownership. Additionally, financial dependency on the lender continues for a longer time.

3. Loan Amount and Disbursal

Short-term home loans typically have lower loan amounts because the repayment period is shorter.

However, long-term home loans allow eligible borrowers to access higher loan amounts, as the EMIs are more manageable over a longer period. This makes it easier to afford higher-value properties without significantly straining the monthly budget.

Short-term loans may be processed and disbursed faster because they carry a lower risk for lenders due to the shorter repayment period. In contrast, long-term loans may require a more detailed evaluation of the borrower's financial stability and creditworthiness, which can slightly delay disbursal.

4. Risk Tolerance

The selection between a long-term vs a short-term loan also depends on the applicant’s risk tolerance and financial comfort level. If they are risk-averse, a longer tenure is more suitable, as it offers lower EMIs and reduces financial strain. This can ensure greater flexibility while managing monthly expenses.

However, if the applicant has a higher risk appetite, can manage larger monthly payments, and wants to reduce interest expenses, a shorter tenure may be suitable.

5. Financial Goals

If the goal is to become debt-free sooner and achieve homeownership quickly, a short-term loan is ideal. It reduces overall interest costs, allowing borrowers to redirect savings towards future investments.

However, if the priority is to stabilise finances and effectively manage existing expenses, a long-term loan is more suitable. It ensures lower EMIs, reducing the immediate financial burden while allowing borrowers to balance other financial commitments.

Wrapping Up

Understanding the difference between a long-term loan and a short-term loan provides valuable insight into financial planning for borrowers. The choice between the two largely depends on financial stability, long-term goals, and the required repayment flexibility.

SMFG Grihashakti offers home loans of up to 90%* of the property’s value with flexible tenures of up to 30 years*. You can use our home loan EMI calculator to assess the impact of different loan amounts, tenures, and interest rates on your monthly payments to make informed decisions. Apply online today to take advantage of competitive interest rates starting from 10%* per annum