Lower your monthly payments with an extended loan repayment period.
What is a long-term personal loan?
A long-term personal loan is a loan that has a repayment period of more than three years. Loan terms that are this lengthy are often used for big purchases — cars, boats, complicated surgeries or big weddings. You’ll still have monthly payments, just like a personal loan with a short repayment term, but the total amount you pay each month will be smaller. However, it comes with a downside: You’ll pay more toward interest.
Usually, long-term personal loans are for amounts greater than $10,000, although you’ll likely be able to find some for less. You may also have a choice between a fixed- and variable- rate. Fixed-rate loans have steady repayment amounts, while variable-rate loans can have fluctuating repayment amounts. This can also impact the total amount you pay, so carefully review your loan contract before signing to be sure you know exactly what you’re signing up for.
Long-term personal loans can be good for your short-term finances because they can add to your cash flow, but you’ll ultimately be in debt for longer.
Compare personal loans with terms as long as five years
Is a long-term loan better than one that’s repaid quickly?
Not necessarily. A shorter loan term may be better because you’ll pay less in interest, but your payments will likely be higher each month. Depending on your financial situation, it may be worth the added interest to be able to keep your payments affordable.
For example, a $20,000 loan repaid over four years at a 12.5% APR will add up to $532 in payments each month and $5,517 in interest over the course of the loan. If that term was extended to seven years, you would be repaying $358 per month, but the interest you pay would just about double to $10,108. You can use our personal loan comparison calculator to see how much your loan’s terms will impact the amount you pay.
5 questions to ask when comparing long-term personal loans
- What is the interest rate of the loan? This largely defines what your payments will be over the course of the loan. Take your rate into account when you
calculate what your monthly payments will be. This way, you’ll know exactly what kind of interest rate you’ll need to shoot for when you apply.
- Is the loan secured or unsecured? Secured loans require collateral and will typically have lower interest rates in comparison to unsecured loans, which don’t require collateral.
- How much is the loan amount? The amount you can borrow depends on various factors such as your credit score, what you need the funds for, your ability to provide suitable collateral, your annual earnings and your monthly expenses.
- Can you repay the loan early? Repayment flexibility may be important to you even if you want a long-term loan. You may come into some cash and want to make extra payments or decide you want to pay your loan off altogether before the original payoff date. Find out if you can do so without penalty.
- What are the other fees and charges on the loan? Check your loan contract for a full list of fees and charges you may have to pay. Some loans with longer terms have maintenance fees and other small charges that can quickly stack up to make your loan much more expensive.
Why should I take out a long-term personal loan?
- Lower your payments. A loan with a longer term means lower repayments, giving you more flexibility with your finances during the loan term.
- Take advantage of early repayment. By choosing a longer loan term and making additional payments, you could pay your loan back sooner while taking advantage of its lower monthly cost.
- Choose between fixed and variable rates. When you’re looking for a long loan term, you may have a choice between a fixed- or variable-rate loan. Each has its benefits, and some lenders even allow you to have a fixed rate near the beginning of your loan term and change it to a variable rate later on.
- Finance a large expense. Long-term personal loans allow you to finance more expensive purchases such as cars or boats as well as big events, like a wedding or medical expense
3 pitfalls of long-term personal loans
- Excessive debt. While taking out a long-term personal loan might seem like a good idea, it might lead to debt that may be difficult to repay. Try to make a repayment plan ahead of time and have a contingency in place for unexpected expenses.
- Fees and charges. Make sure you go through all the fine print and find out exactly what you have to pay in terms of fees and charges. These can come in the form of application fees, insurance costs, origination fees, early repayment fees, settlement charges and late charges.
- Tendency to splurge. Long-term personal loans normally set a minimum loan amount that may leave you with a larger chunk of change than you needed. If you’re not responsible with that extra cash, you can be tempted to spend it on things you can’t afford.
Savings with a shorter loan termFor example, let’s say you’re looking to borrow a $40,000 loan. You can choose between a 4-year term and a 7-year term, and the lender offers you the same interest rate for either. As the table below demonstrates, you’ll save thousands on interest with the shorter term, but your budget may be stretched thin with higher monthly payments.
|4-year loan||7-year loan|
|Difference||+ $9,608 more in interest|
Although a longer loan term may be more convenient and provide lower monthly payments, you may end up paying more in interest over the long haul. And if you aren’t sure, you can read our guide on how personal loans work to get a more clear picture of the borrowing process.
How to apply for a long-term personal loan
Applying for a long-term personal loan is rather straightforward and you should compare your options before getting to this step. As part of the application process, most lenders will want to take a look at a few things including:
- Credit history
- Proof of residence
- Employment status and history
- Proof of income
If you’re applying for a secured loan, you’ll have to provide documents to prove ownership of the collateral in question.
A long-term personal loan could be just the right thing to tackle that home improvement or pay for your dream vacation. But if you aren’t careful, you may end up paying much more than you expected in interest. Having a budget in place and being sure you’re only borrowing as much as you need will help you avoid going into debt that you can’t afford.
Before committing to a lender, compare your personal loan options to see which lender can best suit your needs.