Home Loans

While the best of borrowing is abstinence, borrowing money is often out of our control. Understanding the different kinds of borrowing can help you limit the effects of debt on your credit rating and wallet. Whether you go for a short-term or long-term loan will depend largely on the purpose of the loan and the amount.

Short-term borrowing
Short- or mid-term loans include such things as personal loans, credit cards, the overdraft facility on your cheque account, vehicle finance, store credit cards and in-store finance. Hire-purchase also falls under this. As the interest on these type of loans is usually high, they’re more suited for small amounts and quick payback.

Long-term borrowing
As the title indicates, long-term borrowing refers to larger loans that take longer to payback. Such long-term loans include long-term personal loans, home loans, bonds and mortgages. Debt consolidation is also a long-term loan as it requires property to secure. The amount you need will determine whether you require a long-term or short-term loan.

Although short-term loans are paid off quicker, you want to avoid adding short-term loans on top of each other as the interest compounds. If you cannot payback your loan quickly, then avoid short-term loans. Determining the right type of borrowing you need can help you avoid the debt trap.