Personal loans typically have repayment terms from one to five years. But if you need the lowest possible monthly payment, or as much time as possible to repay a personal loan, you may look for one that’s longer than usual.
It’s important to understand how a longer repayment term will affect the overall cost of a personal loan. Here’s a look at how long-term personal loans work, where to find one, and what to know about the pros and cons of loans with longer repayment terms.
- What’s a long-term personal loan?
- Where can I get a long-term personal loan?
- Long-term personal loan lenders to consider
- How can I get a long-term personal loan?
- Pros and cons of long-term personal loans
- Alternatives to long-term personal loans
While many lenders offer loan terms up to five years, some offer loans with terms up to seven years. Generally, long-term loans work the same as short-term loans. You’ll repay the loan in monthly installments on a set repayment schedule. But long-term loans usually have a lower monthly payment amount.
While having more time to repay a loan may sound like a good idea, there are caveats to consider. Long-term personal loans typically have higher interest rates than shorter-term loans, although if you have excellent credit you may be able to get a lower interest rate. Also keep in mind that because you’re stretching the time you take to pay back the loan, you’ll pay more in interest.
Here are two examples of what you might pay for a $10,000 loan with differing terms:
Three-year repayment term:
- Interest rate: 8%
- Monthly payment: $313
- Total interest: $1,281
- Total loan payment: $11,281
Seven-year repayment term:
- Interest rate: 8%
- Monthly payment: $156
- Total interest: $3,092
- Total loan payment: $13,092
A longer loan term can reduce your monthly payments, but you’ll end up paying more in interest over the life of your loan. When considering your personal loan options, make sure to consider which rates and terms work best for your needs.
Personal loans with longer terms typically are harder to find, but lenders may offer them for certain uses, such as funding home repairs or paying off medical bills. Some banks, credit unions and online lenders offer long-term loans, but not all do.
- Banks may offer longer terms to existing customers in good standing. They may also offer lower rates on long-term loans.
- Credit unions are member-owned, so you’ll have to be a member to get a personal loan from a credit union. It may be difficult to find a credit union that gives longer-term loans. Credit unions that do make long-term loans may limit what they can be used to fund — such as home improvement projects.
- Online lenders offer a convenient and practical way to find long-term personal loans. But only a handful of online lenders actually offer longer-term loans, and you may need good to excellent credit to qualify for a long-term loan.
When looking for a long-term personal loan, it’s important to shop around and compare lenders to find the best possible rate. Credible makes it easy to compare personal loan rates from multiple lenders all in one place.
Some of the best lenders for long-term loans are Credible partners. But it’s important to compare lenders so you find the best choice for your needs.
- Loan amounts: $10,000 to $50,000
- Loan terms: Three to six years
- Minimum credit score: 700
- Loan amounts: $2,500 to $35,000
- Loan terms: Three to seven years
- Minimum credit score: 660
- Loan amounts: $2,000 to $36,500
- Loan terms: Two to six years
- Minimum credit score: 580
- Loan amounts: $5,000 to $100,000
- Loan terms: Two to seven years (up to 12 years for home improvement loans)
- Minimum credit score: 660
- Loan amounts: $3,500 to $40,000
- Loan terms: Three to six years (up to 12 years for home improvement loans)
- Minimum credit score: 660 (TransUnion FICO® Score 9)
- Loan amounts: $5,000 to $100,000
- Loan terms: Two to seven years
- Minimum credit score: Does not disclose
Each lender has eligibility criteria you must meet to qualify for your long-term loan. Most require good to excellent credit, so working to improve your credit score, offering collateral or getting a cosigner can help if your credit doesn’t meet the lender’s minimum requirements. Here are some things you can do to improve your chances of qualifying for a personal loan.
- Improve your credit. Lenders consider your credit score first when extending credit, determining your APR or qualifying you for a long-term loan. Factors like your credit payment history, credit mix, new credit applications, your credit utilization ratio and total debt also matter.
- Pay down other debt. When determining your eligibility for a long-term loan, lenders look at factors like repayment history and all outstanding debts. They use this information to assess the risk of lending to you. Paying down your current debt and paying your credit card, mortgage and all other bills on time can make it easier to qualify for a loan without offering collateral.
- Improve your debt-to-income ratio. Your debt-to-income ratio (DTI) helps determine how much you qualify to borrow. Lenders look at your DTI to decide if you can take on more debt and make another monthly payment. Many personal loan lenders want to see a DTI ratio no higher than 40%.
To improve your DTI, pay down or pay off your existing debt (if possible) and don’t take on any new debt. You might also consider reducing your spending by purchasing only what you need.
- Increase your income. Lenders also look at your employment history and income when deciding to offer a long-term loan. You may be in a better position if you can increase your income. If you get alimony or child support, your lender may count that as income. You could also start a side hustle or take on a part-time job.
- Get a cosigner. If your credit or income doesn’t meet a lender’s requirements, or you have no long-standing relationship with a local bank, you might want to consider using a cosigner. Your cosigner will be asked to meet your lender's requirements, and if you fail to make payments, your cosigner becomes responsible for the loan.
- Offer collateral. Personal loans are usually unsecured, meaning you don’t need to put up collateral — such as your car or house — to qualify. But some lenders may offer higher amounts and longer terms if you secure your loan with assets as collateral.
As with any financial product, long-term personal loans have advantages and disadvantages.
Pros of long-term personal loans
- Get lower monthly payments when compared to a short-term loan.
- A longer-term loan might help you finance a large purchase or pay off a major expense.
- You might qualify for a better rate than with a credit card.
- Loans are usually for much higher amounts.
- Long-term loans are flexible to fund most anything.
Cons of long-term personal loans
- Interest rates may be higher on long-term loans.
- You may face charges such as an origination fee or prepayment penalties.
- Interest adds up over the life of your loan.
- Not every lender offers long-term loans.
- It can be challenging to qualify.
When deciding if a long-term personal loan is right for you, consider factors such as your monthly budget and how much extra debt you can afford to take on. This ensures you make the best decision for your unique financial situation.
When should I get a long-term personal loan?
Suppose you want to make a large purchase or need a substantial amount of money to fund home improvements or pay off medical bills. In that case, repaying the loan over a longer period generally means you’ll have lower monthly payments, which may be easier to manage.
But because the payoff period is longer, you’ll accrue more interest than with a short-term loan. A personal loan calculator can help you get a better idea of the costs associated with a long-term personal loan.
When should I avoid a long-term personal loan?
Some lenders have minimum borrowing amounts for long-term loans. If you don’t have the regular income to make the payments, you risk defaulting on your loan, which can damage your credit for years.
You can learn more about personal loans and compare rates and repayment terms from multiple lenders using Credible.
If you need to borrow a large amount of money or require a longer repayment term, take a look at these alternatives to a long-term loan.
- 0% APR credit card — If you can qualify for one, a 0% credit card waives interest during a set promotional period. As long as you pay it off before the promotion ends, you’ll avoid interest charges. But if you don’t pay off the balance before the end of the introductory period, you could be looking at high interest on the remaining balance.
- Home equity loan — Home equity loans come with a fixed interest rate and monthly payments, which won’t change over the life of the loan. The amount you can borrow depends on the equity you have in your home. But your home equity loan payment is added to your mortgage payment, making your monthly payments much higher. Plus, if you default on the loan, your home is at risk of foreclosure.
- HELOC — A home equity line of credit (HELOC) is similar to a home equity loan, as you borrow against the equity in your home. It's also a lot like a credit card, where you only borrow what you need, and the interest is compounded on the amount you borrow. But like a credit card, you may be tempted to overborrow, and if interest rates rise, so does your payment. Plus, a HELOC puts your home at risk if you fail to repay the line of credit.
- Cash-out refinancing — Like a home equity loan and HELOC, a cash-out refinance taps into the equity in your home. You can usually get a significant amount of money at low interest rates and longer repayment periods, but if you can’t make your payments and repay your loan, you could lose your home to foreclosure.
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