Different Types of Loans – Short, Medium & Long Term Loans

When a person is searching for any type of loan, they can often feel a little bit baffled by the sheer range of loans that are on offer. And we’re not just talking simply about the amount of lenders out there. No, we are also thinking about the fact that you can come across secured loans, unsecured loans, homeowner loans, payday loans, mortgage loans and the list really does go on and on. We also have to consider the term of any loan. Would a short, medium or long term loan be best?

With this in mind, we thought it would be good to take a brief look at the different types of loans which are available to give you an idea of what they all entail and the differences between them. In this post, we’ll start by looking at which types of loans would fall into the categories of short, medium and long term loans.

Short Term Loans

Short term loans come in many forms and they are often quite a controversial form of lending. Loans that fall into this category can include payday loans, asset-backed loans, loans from a pawn shop, or perhaps you have even heard of loans from the sort of lenders who will lend you money and then knock on your door each week or month to collect the repayments due.

I really don’t want to mention any company names here. In the interest of providing a well-rounded overview of the loans market though, we do have to mention short term loans. Short term loans are often loans for smaller amounts of money, possibly from £100 to £1000 – or something along those lines – and the repayment terms are short, as you would expect.

It’s wise to be very careful when considering this type of loan as they often involve extremely high interest rates and high charges if you fall behind with your repayments. You may also lose cherished possessions if you provide security for a loan with something which you own but then are for some reason unable to make the repayments.

Medium Term Loans

When discussing loans, many people might skip straight to the idea of long term loans at this point. Personally though, I think it’s best to talk about any loan which involves a term of around 1-7 years as a medium term loan, as it is nothing like the kind of term involved with something like a mortgage, which we’ll discuss in a minute.

Medium term loans are the kind of loans which you could get from a mainstream lender such as TSB. They usually have a term of around 1-7 years and the amount you can borrow will often range from £1000-£25000.

Logbook or asset-backed loans should probably also get a mention in this section, as the size of these loans are usually larger than that of a short term loan and will usually therefore have a longer repayment term. Log book loans are loans which are taken out with your car as security, so if you don’t repay then your car could be taken away from you to cover the unpaid loan amount. Asset-backed loans are similar to logbook loans but they involve using some other asset or possession as security rather than your vehicle. The interest rates on logbook loans or any other asset-backed loan will usually be higher than those of a standard mainstream bank loan, as many of the people who go for this kind of loan do so because they may have had problems with credit in the past. The interest rates will likely not be as high as they would be on a payday loan though, as there is some vehicle or asset which is being offered as security for the loan.

Long Term Loans

There are two types of loan I want to mention in this section covering long term loans and these are homeowner loans – otherwise known as secured loans – and mortgage loans.

As we’ve seen so far in this post, it is generally the case that when you want to borrow more money, lenders will usually want some kind of security in return, especially if you are hoping to achieve a lower rate of interest on your borrowing. You will have also seen that as the amount that you wish to borrow rises, the term of the loan will often rise with it, which is perfectly understandable. As a result of this, most lenders will want any long term loan of a high amount to be secured against property, good old bricks and mortar. When securing a high value loan against property, lenders will also allow you – or even expect you – to repay this type of secured loan over a longer period of time. According to some sources, secured loan lenders will often be willing to lend amounts of anywhere between £5,000 and £500,000, for terms that range between 3 and 25 years.

When it comes to mortgages, it’s difficult to place a minimum and maximum amount on what lenders will be willing to lend. I had a quick glance today and the amounts vary drastically across different lenders, ranging from a minimum loan amount of £1 to an unlimited (or unstated) maximum amount. With regards to the mortgage term, the length of the loan which will be allowed will often depend on the age of the borrower, though some lenders have been known to grant mortgage terms of up to 50 years if they feel that the circumstances of the borrower merit this.

What can we learn?

We can see then that as the amount that you wish to borrow increases, the term of the loan will often increase too. We can also see that with both short term and medium term loans, security to back the loan will often not be required unless you have a bad credit history, in which case security may be required in order for you to obtain a loan at a lower rate of interest.

With long term, high value loans such as mortgage and homeowner loans however, security to back the loan is almost always required and this will usually come in the form of a ‘charge’ against your property. These loans are therefore known as ‘secured’ loans. While these types of loans do carry the risk of you losing your home if you don’t make the repayments, they do also usually come with lower rates of interest as the lender knows that there is some physical asset which they can take possession of if the borrower were to default, making the loan a safer proposition for the lender. We’ll be discussing both secured and unsecured loans in more detail in an upcoming post.

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