How is a short-term loan different to a longer-term loan?

How is a short-term loan different to a longer-term loan?

Besides paying back over longer and shorter periods, there are different costs, restrictions and conveniences that split short and long term loans.

As the names suggest, the biggest difference between short and long term loans is the time you have to repay the money and interest back. There are other variances too, like how much you can borrow, the costs involved and how fast you receive your loan.

Borrowing amounts

Typically, with loans where repayments last less than a year, you generally can’t borrow more than £1,000. Alternatively, loans set up to be paid off over a few years, like those from banks, will potentially let you take out anything up to £25,000, if you meet the lender’s criteria.


Note: repayment amounts would depend on affordability and loan options.

Larger loans which you repay over a year:

  • Repaid every month
  • Larger repayments as the loan tends to be larger
  • Smaller APR rates
  • As repayments for larger loans are made monthly, they will seem larger when compared to their short-term counterpart

Short term loan you repay over a number of weeks:

  • Weekly repayments
  • Smaller repayments as the loan is a smaller amount
  • Larger APR rates
  • Repayments for short term loans will seem small in comparison to larger loans, as repayments are made weekly

Loans taken with online lenders:

  • Repaid each week or month

Payday loans:

  • Repaid in one go when you receive your next pay cheque
  • APR rate tends to be larger
  • As you repay the full cost of your loan in one lump sum plus interest, the amount you repay will be high compared to the above

Interest rates

The cost of borrowing, also known as the interest rate, is often higher on shorter loans. We cover exactly how interest works elsewhere, but it’s a bit like a charge for having the use of money that isn’t yours. When this is applied to a whole year’s worth of borrowing, it’s called APR (annual percentage rate) and it’s shown on short and long loans, no matter the loan terms. The APR of a loan helps you to compare the prices of different loans and is calculated over a yearly basis. For short-term borrowing, the APR is calculated over a shorter term. Therefore weekly repayment loans like ours may look less favourable compared to other lenders’ credit products when just using the APR as a comparison.

The APR of all credit products is calculated over a yearly basis, whether or not they are repaid over a year. This makes the APR seem high on loans of a shorter term, which are repaid over a number of months, when compared to other loans which are repaid over a number of years.

For longer-term loans which use a Guarantor or Credit Union, repayments are typically made over a few years and the interest is typically lower. Credit Unions are required by law not to charge more than 42.6% APR.


Whether a short or long term loan comes with charges varies from product to product. But, in general, there’s a chance both loan options will come with some sort of set-up fee as well as additional charges, should you want to extend repayments past the repayment date. Often with long-term loans, like those from banks, there can be charges if you want to pay it off early too. To see exactly the kinds of fees you might find with a short-term loans from lenders, see our guide of hidden costs.

Credit rating

All loans are recorded on your credit file, including your repayments, and therefore will have an impact on your credit rating. People with good credit scores might find it’s easier to get long-term loans than people with bad credit scores. That’s because having a good credit rating suggests a person can be trusted to keep repaying over several years. Conversely, loans of a shorter term are for people who don’t want to take a loan over a longer period.

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