Long-Term Loans Offering More Affordable Installments – As the name implies, long-term loans have long loan terms or long repayments.
There are two opinions about the classification of these loans. First, there is an opinion that a loan is categorized as long term if the loan period is more than one year.
Second, if the loan period is more than 5 years, while loans with a term of 1-5 years are categorized as medium term.
The time is given to pay off the loan longer
Whatever the opinion, the most important thing is the time given to pay off the loan longer. Because longer, installments become more affordable. In other words, you can get a larger loan amount.
The illustration is as follows. We take the example of a loan with a ceiling of 24 million and a flat interest of 1% per month.
If you borrow within one year, then the monthly installments to be paid are 2,240,000.
If you borrow within five years, the monthly installments to be paid is 640,000.
It seems clear how long-term loans are more affordable? The longer the time period you get, the smaller the installments that must be paid.
Another illustration can be obtained from a different perspective. For example, you have the ability to pay in installments of 500,000 every month.
If you take a short-term loan within a year with a flat interest of 1%, the number of loans you can get is around 5 million.
If you take out a loan within 10 years of 1% flat interest, the number of loans you get can reach around 25 million.
Therefore, a long-term loan allows you to borrow a sizeable amount. If you need business capital, of course you need a large fund right?
Then, with inflation that continues to exist every year, the value of money becomes smaller from year to year. For example, the value of 500 thousand today feels big enough, but in ten years maybe 500 thousand is not very valuable because prices have gone up high.
So, if you get a flat loan contract for a long time up to 10 years or more, then your burden will feel lighter from year to year.
Long-term loans are not easy to obtain
However, long-term loans are not easy to obtain. Because it is a long-term contract, the bank or other lenders need strong evidence of your ability to pay.
You must be able to show the stability of your financial condition. If you are a worker, you must work as a permanent worker in a place that has been around for a long time and has a good reputation.
If you are an entrepreneur, your business must have been established for a certain time with proven financial stability.
In addition, banks also need guarantees whose value is stable for a long time or even better if the value can grow from year to year.
The best type of collateral for this type of loan island with ownership rights because the land value will usually always go up according to regional development.
If the collateral is in the form of certified land owned, the loan period can reach ten years or more.
Motorized vehicles with proof of ownership can also be used as collateral, but the time period is not too long because the value of motorized vehicles will decrease every year as the condition of the engine and body of the vehicle decreases.
Usually can not be more than 5 years. In addition, the age of the vehicle also affects lending. Vehicles that are old, more than ten years old, will be difficult to guarantee.
Besides being difficult to obtain, another disadvantage of long-term loans is the amount of interest you have to pay.
Total interest charged is multiplied by the amount of the installment
Because there are more installments, the total interest charged is multiplied by the amount of the installment.
If it’s only one year, the interest is only 12 times, while 5 years is 60 times. If you have already counted like this, trouble starts.
Because each type of loan has advantages and disadvantages of each, pay attention to the amount of interest, the amount of installments, other costs, and the benefits you will get from the loan.
Perform calculations carefully so that you do not choose wrong. The most important thing is to choose a loan that can meet your needs and remain affordable to you.