Short-term loans vs long-term loans

Short-term loans are where you borrow a small amount for a short period of time. With long-term loans you borrow a larger amount and repay it over several years. Which option is best for you depends on how much credit you need, your financial circumstances and your credit history.

7 min read
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What is a short-term loan?

Short-term loans are personal loans where you borrow a small amount of money that you pay back within a short amount of time. Normally the maximum time you have to pay back the loan is one year, but this can be longer or shorter depending on the lender and amount borrowed.

Short-term loans are generally under £1,000 because that’s the maximum amount most lenders believe somebody can pay back within a year. However, the amount you are offered will depend on your credit history and financial circumstances.

There are two different categories that short-term loans can fall into:

  1. Payday loans are lent to you until your next payday, whether that be at the end of the week, month or quarter. You will need to pay back the full amount when you get your next pay cheque
  2. Short-term loans from other providers such as banks, online lenders and credit unions can be lent to you for up to a year and are usually paid off weekly. How much you repay and how often depends on the lender, the amount you’re looking to borrow and your credit history

What are short-term loans used for?

Short-term loans are generally used by people who need to borrow a small amount of credit quickly and for a short period of time.

For example, you might need to spend £500 to get your car repaired in order to travel to work but you’re unable to afford the repairs. You could take out a short-term loan for £500 and pay off the repairs weekly at £25 per week. It would take you 25 weeks to pay off the full amount, not including interest.

Payday loans are intended for you to take out credit until your next payday, when you’re expected to pay the full amount.

For example, you may need to spend £200 to fix the boiler but don’t have the money until you get paid at the end of the month. You could take out a payday loan for £200 and pay it off when you get your pay cheque. Just remember that you’ll have to pay any added interest on top of the amount you’ve borrowed.

Pros and cons

There are several pros and cons that you should consider before applying for a short-term loan:


  • You can access the money you need quickly with short-term loans because you are being lent a small amount of credit. This can be handy if you need the cash very quickly
  • You’re not tied into repayments for several years. Your financial circumstances may change over the next few years and by only taking a loan out for a short amount of time, you don’t need to worry about being able to make repayments in a few years
  • There are lots of different borrowing options with short-term loans because many different financial companies provide them. This means you can shop around for the best deal – make sure you use an eligibility checker before deciding which loan to go for, as it’ll show you the likelihood of acceptance – without impacting your credit score


  • Short-term loans usually have higher interest rates than other types of loans and can have extra fees. Interest rates and charges differ between providers so do thorough research before applying
  • There is usually a lower limit to the amount you can borrow with a short-term loan because you’re expected to pay it back over a shorter period of time. If you’re looking to borrow a large amount a short-term loan may not be the best option for you
  • With a payday loan you have to pay back the full amount using one paycheck and you may find it difficult to live off the money you have left over. You could end up taking out another payday loan to tide you over again, putting you back in debt

Be careful when considering taking out any type of short-term loan because if you’re not able to make the repayments you could spiral into debt.

What is a long-term loan?

Long-term loans are considered to be the typical type of personal loan, where you take out a large amount of money and pay it back via monthly repayments that can be spread over several years. Typically lenders offer any amount up to £25,000, but how much you can borrow will depend on your credit history and personal financial circumstances.

What are long-term loans used for?

Long-term loans are usually taken out by people who need to borrow a large amount of credit and pay it back over several years.

For example, you might take out £5,000 to pay for a new car and pay the money back via monthly payments. If you paid back £100 per month it would take you four years and two months to pay back the full amount, not including any interest.

Pros and cons

There are several pros and cons that you should consider before applying for a long-term loan:


  • Since you can borrow more than with short-term loans, this may be a good option if you need to borrow a larger amount
  • Interest rates are usually lower for long-term loans than short-term loans. This is because you’re borrowing more for a longer period of time. Lenders generally reserve the best rates for those with a higher credit score, as they pose less risk from the lender’s point of view
  • Similar to short-term loans, long-term loans are offered by various different financial companies, including banks, building societies, online companies and credit unions. This offers you plenty of choice to find the best deal


  • There may be extra fees with long-term loans, so make sure you’re fully aware of any charges before applying for a loan
  • You’re committing to repayments for a longer period of time. This could be a problem if your financial circumstances change and you stop being able to make repayments. Missed payments may affect your credit rating and result in the lender taking action against you
  • If you’re struggling to make repayments and extend the debt time, you’ll end up paying a higher amount in comparison to the amount you borrowed in the first place

With any type of long-term loan, it’s important to make sure that you can make the repayments on time and in full each month, otherwise you could get further into debt.

Which is best for me?

Which type of loan is best for you depends on your credit history, financial circumstances and the amount you need to borrow.  

If you only need to borrow a small amount, usually £1,000 or less, and can pay it back within a year then a short-term loan might be the right choice for you. You also might find it easier to get a short-term loan if you have a thin or poor credit history.

A long-term loan might be the better option for you if you need to borrow more than £1,000 and believe that you can pay the money off over several years. If you have a good credit score you also might find that you get good interest rates on a long-term loan.

Whichever loan you decide to take out, make sure you only borrow an amount where you can meet the scheduled repayments to stop yourself getting into financial difficulty.

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Intelligent Lending Ltd is a credit broker working with a panel of lenders.

Disclaimer: All information and links are correct at the time of publishing.

Adele Kitchen, Personal Finance Writer

Adele Kitchen

Personal Finance Writer

Adele is a personal finance writer with more than 10 years in the finance industry behind her. She writes clear and engaging guides on all things loans for Ocean, as well as contributing blogs to help people understand their options when it comes to money.