Long term loans

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:

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 –

• Home improvement
• Debt consolidation
• Buying a car

…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.

What are the pros and cons of long term loans?

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

• What is the longest loan I can get?

  Some lenders offer secured loans with terms of up to 30 years. Most personal loans have terms between 1 and 5 years, though some may offer up to 10 year terms.

• Can you pay off a long term loan early?

  Yes, many secured long term loans allow additional and early repayments, meaning you can pay off your outstanding loan amount at any time without penalty.

• Who offers long term loans?

  Traditional lenders such as the “Big Four” banks and retail banks like Sainsbury’s and Tesco generally only offer personal loans. Long term secured loans are more likely to be provided by specialist lenders.

• How much can I borrow with a long term loan?

  You may be able to borrow up to £2.5 million on a long term loan, though this will be limited to the amount of home equity you can use as security against the loan.

• What are the typical interest rates on a long term loan?

  Long term loans are offered with interest rates between 3.5% and 15%, but the actual rate you get depends on your individual circumstances. In general, longer term loans have lower interest rates than short term personal loans, especially in the case of long term secured loans.

• Will I be charged any fees on a long term loan?

  Yes, you may need to pay additional fees when taking out a secured long term loan. These include lender fees, application fees and property valuation fees.

• Is it possible to get a long term loan with no credit check?

  No, lenders will always perform some kind of credit check when you apply for a loan. However, it’s still possible to get a long term loan if you have bad credit, and some brokers and lenders specialise in arranging loans for those with poor credit history.

• Is it possible to get long term payday loans?

  No, payday loans are only offered on a short term basis and need to be repaid over a much shorter period.

Written by

Tom Stelzer

Writer

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 bio