Long term loans

Longer loans (say, up to 30 years) tend to cost less each month but more overall.

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How long is “long term”? Well, it’s all relative. Traditional personal loans tend to max out at 5 or 7 years. A small number of banks might offer unsecured loan terms of up to 10 years to existing customers. But “long term loans” perhaps more commonly refers to secured loans, which can last as long as 30 years.

Secured loans are a type of borrowing that uses the equity you’ve built up in your home as collateral against a loan. These loans tend to be for larger sums, because lenders won’t lend out huge sums without being confident they’ll get their money back.

How does a long term loan work?

A long term loan works much like any other personal loan but is repaid over a longer period, which is generally anywhere from 10 to 30 years. Most long term loans are offered as secured or homeowner loans, which means your house is used as security against the loan and could be repossessed if you fail to make your repayments.

The main benefit of a long term loan is that its spread over a longer period, which can make it more affordable for those on a strict budget. However, while your monthly payments will be smaller, you’ll most likely pay more over the life of the loan.

Short term vs long term loan illustration

Long term loans are generally offered with lower rates than short term loans, and your monthly repayments will likely be more manageable. But the key difference between short term and long term loans is that long term loans offer smaller repayments, while short term loans cost less overall.

You can compare the cost of short term and long term loans in the example below:

Loan termLoan amountAPRMonthly repaymentsTotal cost of loan
7 years£30,0006% (fixed)£436£36,622
20 years£30,0006% (fixed)£212£50,925

As you can see from this example, a shorter term loan costs less overall than a long term loan for the same amount, but the long term loan offers lower monthly payments. When choosing between a short term or long term loan, it’s important to understand the potential overall cost, as well as how much you can afford to repay each month.

What can a long term loan be used for?

In theory a long term loan can be used for any purpose, but lenders will always ask what a loan’s for. They’re expecting to hear things like –

…but if it’s something else, chances are an underwriter will need to sign off on it. If it was say, to fund a risky investment, or launch a criminal enterprise, then obviously you can expect a swift “No”.

How to use Finder to compare long term secured loans

If you’re considering borrowing against the equity in your home, you can use our secured loan calculator to see today’s market rates from a range of secured lenders. However, rates are tailored to individual circumstances, so it’s also worth getting free personalised quotes, which you can do without affecting your credit score.

We compare lenders including:
Spring
Equifinance
Together
Pepper Money
Evolution
United Trust Bank Ltd
Selina
Think carefully before securing debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage.

What are the pros and cons of long term loans?

Pros

  • Smaller repayments. The lower your monthly repayments, the more manageable the loan is likely to be, as the cost of the loan is split over more instalments. This can make long term loans more attractive for those looking to spread the cost of a large expense over a number of years.
  • Lower interest rate.As secured loans represent less risk to the lender compared with other types of loan, you’ll generally receive a more competitive rate.
  • More flexibility. Long term secured loans generally offer an additional repayment option, which means you can pay off your loan more quickly and save on interest. The smaller size of repayments on a long term loan will also let you free up cash for other purposes.
  • More likely to be approved. You’ll generally have a better chance of getting a secured loan than an unsecured loan because of the associated risk for the lender.

Cons

  • You’ll pay more in interest. The main disadvantage of a long loan term is that the overall cost of the loan will be higher, as you’ll be paying interest over a longer period. Depending on the size and length of your loan, this could mean your loan ends up being much more expensive than the equivalent shorter term loan.
  • Your equity is at risk. A secured loan requires you to use an existing asset as collateral, and this asset can be forfeited if you then fail to repay the loan.
  • Not available to everyone. If you don’t have equity in your home or are unwilling to use it as security, you won’t be eligible for a secured, long term loan.
  • Limited options. Most lenders only offer personal loans of up to 5 years. If you want a secured or long term loan, it’s likely you’ll have to apply with a specialist lender.

Am I eligible for a long term loan?

You’ll need to be a homeowner to be eligible for most long term loans, as they are generally offered as secured loans, which require you to use your home as security against the cost of the loan. While many lenders offer unsecured personal loans with longer loan periods, you’ll likely need good credit history to be eligible for those loans.

How to apply for a long term loan

To apply for a long term loan, you’ll generally need to contact a specialised secured loan broker or lender who can better explain your loan options and chances of getting approved. When you apply for a secured long term loan, you’ll also need to arrange for a valuation of your home. Your broker or lender can help organise this.

Is it possible to get long term loans for bad credit?

A secured long term loan may be a suitable option if you have a poor credit rating. You’ll be considered a higher risk than someone with a good credit rating. So, using security against your loan can help mitigate that risk for the lender, meaning you have a better chance of being approved.

As a longer loan term also reduces the size of your monthly payments, lenders may think you’ll be more likely to pay off the loan on time, which could also help your chance of approval. However, this may also work against you, as a longer loan term means there’s more time for your financial situation to change and, therefore, more risk that you could default on the loan.

If you have bad credit, you’re also unlikely to get a competitive rate, which is one of the major benefits of a secured, long term loan.

Do I need a guarantor for a long term loan?

No, you won’t necessarily need a guarantor to apply for a long term loan, especially if you’re a homeowner looking to use your house as collateral against the loan. If you’re applying for a longer term unsecured loan, having a guarantor may improve your chances of getting approved, but it’s likely you’ll need to also have a good credit score to be eligible.

Can I repay a long term loan early?

Yes, most lenders let you repay your long term loan early, but it’s worth checking with a specific lender if this is the case before you apply for your loan. You may also need to pay an early settlement fee if you repay your loan early, which varies depending on the size of your loan and how much you have left to pay off.

Can long term loans improve my credit rating?

Yes, as with any form of loan or credit, taking out a long term loan can help improve your credit score, provided you make your monthly repayments on time. If you can successfully pay off a long term loan, you’ll demonstrate that you’re a responsible borrower, which can be reflected on your credit score.

However, if you fail to make the repayments on your long term loan, you may end up damaging your credit rating, which can make it harder for you to get another loan in the future.

What are my other long term loan options?

Long term personal loan. Most lenders provide personal loans with terms of 1 to 5 years, but there are some unsecured personal loans with terms of 10 years. However, this option may only be available to borrowers with good credit history, and you’ll have to check your eligibility with specific lenders.

Credit card. You could also consider applying for a credit card, which offers ongoing access to an agreed credit limit. As long as your account remains open and you meet the minimum monthly repayment, you can continue using your line of credit for as long as you need. Some credit card providers also offer extended interest-free periods, meaning you won’t have to pay any interest on the credit you use for up to 2 years.

Bottom line

Whilst long term loans allow you to spread the payments over a longer period, they’re typically secured against an asset – meaning that should you default on the loan, you’ll lose the asset. As with any loan, you should only borrow the money if you’re sure you can pay it back. However, although they pose a higher risk to you when secured against an asset, they reflect the lower risk to the lender through lower interest rates.

Frequently asked questions

We show offers we can track - that's not every product on the market...yet. Unless we've said otherwise, products are in no particular order. The terms "best", "top", "cheap" (and variations of these) aren't ratings, though we always explain what's great about a product when we highlight it. This is subject to our terms of use. When you make major financial decisions, consider getting independent financial advice. Always consider your own circumstances when you compare products so you get what's right for you. Most of the data in Finder's comparison tables has the source: Moneyfacts Group PLC. In other cases, Finder has sourced data directly from providers.
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Written by

Tom Stelzer

Tom Stelzer is a writer for Finder specialising in personal finance, including loans and credit, as well as small business and business loans. He has previously worked as a freelance writer covering entertainment, culture and football for publications like FourFourTwo and Man of Many. He has a Master of Media Arts and Production and Bachelor of Communications in Journalism from the University of Technology Sydney. See full profile

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