Long-term loans offer a ceiling ranging from $ 20 to over $ 1000. That way, the payment period offered is quite long, starting from 5 to 20 years.
Generally, long-term loans require collateral or collateral in the form of property which is often referred to as mortgage debt.
However, even now there are many unsecured long-term loan products. For example, Payday Loans offer a ceiling of up to $ 1000 with a tenor of up to five years.
If you think about it, being bound by the obligation to pay installments within a dozen years sounds scary, huh?
Moreover, if you are late or forget to pay the installments so you will be subject to fines and late interest which will add to the bill.
Even so, long-term loans can be a realistic solution for those who need large funds but don’t want their cash flow to be disrupted by heavy installments.
Therefore, before taking a long-term loan, you should first know the impact on your finances. Here is the review.
Plus-minus long-term loans
1. Affordable installments but greater interest expense
Loan debt with a long tenor makes the installments that must be paid each month to be smaller.
However, with a longer payment period, it means that the interest expense that must be paid is higher, so that the total installment becomes larger.
2. Reducing the tax burden but also reducing income
For business actors, long-term loans can be an ideal choice as additional capital. Because, the loan interest rate can be covered by the turnover earned.
In addition, because debt or loan expenses are classified as expenses charged to companies, long-term debt interest costs reduce income, thereby reducing tax burdens.
Even so, debt is still a burden that must be borne by business actors until the time for repayment arrives. Indirectly, business actors are also required to increase income in order to cover loan installments and get higher profits.
3. The installment time is long, the risk is greater
The length of time that your loan installments can be double-edged. On the one hand, debt coverage has become lighter. On the other hand, the longer the loan period, the greater the risk that will be borne.
You must ensure that your financial condition is adequate, including when external factors affect your finances. For example, if there is a risk of an accident requiring fresh funds immediately or the risk of layoffs that cause you to lose your income.
Without proper financial planning, it is likely that the loan installment allocation can be disrupted. The risks range from default to the confiscation of collateral.
To minimize the risk of bad credit, it is very important to have sufficient emergency fund savings before taking out long-term loans.
Some financial planners recommend setting up an emergency fund for the cost of living for 6-12 months. But what is clear, the greater the expenses and dependents that are owned, the greater the emergency fund that must be prepared.
In addition, don’t forget to include credit insurance on the loan you take. The goal is so that when something unexpected happens to the debtor, such as passing away, the remaining installments will be borne by the insurance company, so that it does not burden the family left behind.