What are advantages and disadvantages of long-term loans?

Business News | 15 Nov, 2019 |

Long-term loans are the type of financing that companies use to make larger investments in their business. The long-term loan is one of the traditional forms of financing and consists of providing liquidity to the company with a long-term return in the form of periodic installments. The purpose that a long-term loan to companies can cover is very broad: from investment in machinery, or other assets, to debt restructuring, through national or international expansion projects, for example, or financing of liquidity positions in long terms. The typology of existing loans in the market is very broad and is a product flexible enough to adapt it to any long-term needs of the company.

The type of long-term loans is that in which the repayment of the amounts owed is made in one or several years. These types of loans can amount to significant economic amounts and therefore, in most cases, it is necessary to cover the risk through guarantees or guarantees.

Advantages of long-term loans

The repayment term and comfort when dealing with the installments are two of the main advantages of long-term loans. It is also important to keep in mind that, due to time dilation, renegotiating the financing conditions, either in the repayment term or in the interest of the loan, is much more feasible.

Everyday Loans offers long term loans, up to 5 years and, depending on the amount, the monthly installments may be less than rent. That is why many people opt for this type of financing at the time of independence and in this way, the money spent on family housing becomes an investment and therefore, saving for the future.

Why are long-term loans avoided?

Many people and companies avoid long-term loans in order not to mortgage their future in terms of investment and growth possibilities. They prefer to rely on short-term financing formulas, such as the advance of invoices or the discount of promissory notes. A financial institution advances the money of the pending collections and, in this way, liquidity is obtained quickly, although the costs are somewhat higher.

Long-term personal loans are more common, such as those dedicated to acquiring a family vehicle or the aforementioned mortgage loan to buy a home, because in this case families can better accommodate their expenses with a longer repayment period over time.

Usually, fast loans are granted in a very short time, with little paperwork and, in addition, the economic amounts are not so high, therefore, no additional guarantees are necessary.

On the other hand, in this type of longer-term loan, it is usually customary to have guarantees or guarantees that cover the possible contingencies that may arise during the period of validity thereof. This is one of the disadvantages of long-term loans, and also, it must be taken into account that due to the long duration of its repayment, the total cost of repayment of the amount financed increases significantly.

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