Short vs. long personal loan terms: How to choose the right one

A longer repayment term will yield a smaller monthly payment, while a shorter term will get you out of debt faster

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Need to borrow money, but aren’t sure what personal loan repayment term to choose? Learn more about short vs. long personal loan terms. (Shutterstock)

Personal loans have repayment terms that typically range from 12 to 60 months, or sometimes longer. But short-term personal loans are also available, with some terms as short as a few weeks up to 12 months. 

A longer loan term leads to lower monthly payments but higher interest costs. If you’re looking to save on interest, you may prefer a short-term loan, even if the repayment schedule is a bit aggressive. 

Here’s more insight into short versus long personal loan terms as you decide which one might be right for your situation. 

Credible makes it easy to compare personal loan rates and different loan terms from various lenders, all in one place.

Pros of short-term loans

Personal loans with shorter terms have several pros to consider, including:

  • Lower interest costs — Because you pay it off quickly, interest costs are less on a short-term loan.
  • Wipe out debt faster — If your goal is to pay off a loan as quickly as possible, a shorter term will help achieve that.
  • Smaller loan amounts available — If you don’t require a large sum of money, a short-term personal loan can help you avoid borrowing more than you need.

Cons of short-term loans

Short-term loans can also have a few drawbacks you’ll want to keep in mind:

  • Higher interest rates — Short-term loans tend to come with higher interest rates than long-term loans. It may make sense to do the math to make sure that a short-term loan is actually cheaper than a long-term loan with a lower interest rate.
  • Expensive fees — Short-term loans can come with high fees that can increase your total loan costs, such as origination fees for processing the loan and late payment fees.
  • Only offers a short-term solution — A short-term loan can’t provide long-term financial support and is only designed to cover immediate cash flow issues.

Pros of long-term loans

Long-term loans come with several benefits, including:

  • Larger borrowing amounts — With long-term personal loans (especially with repayment terms of five years or longer), it’s generally easier to secure larger loan amounts than you can get with short-term personal loans.
  • Credit-building potential — If you make all your personal loan payments on time, it can improve your credit score. A long-term personal loan gives you a longer time period to make consistent payments.  
  • Smaller monthly payments — Because repayment is spread out over more months or years with a long-term personal loan, your monthly payment amount will likely be smaller and more manageable than a short-term loan.

If you’re looking for a loan with flexible repayment terms, Credible makes it easy to see your prequalified personal loan rates, without affecting your credit score.

Cons of long-term loans

Before you take out a loan with a longer term, keep these potential drawbacks in mind:

  • Increases debt-to-income ratio — The more debt you have, the higher your debt-to-income ratio can be, which makes it harder to qualify for other lending products. If you know you’ll need an important lending product while you’re repaying a long-term personal loan, like an auto loan or mortgage, you may want to hold off on getting a personal loan, or you may opt for one with a shorter term instead.
  • Can be more expensive — While short-term loans tend to have higher interest rates than long-term loans, you often end up paying more interest over the life of the loan since you have to make interest payments for so many more months with a long-term loan. Again, it’s important to crunch the numbers here to see which option can save you more money.
  • Longer financial strain — If you’re struggling to make debt payments, having a long-term personal loan can add a lot of financial stress to your plate for many years. You may not want that debt hanging over your head for so long.

Which loan repayment term is right for you?

Not sure if a short-term loan or a long-term loan is right for you? It can be hard to make this call, but looking at the numbers can help make the decision easier. The first thing you’ll want to consider is how the personal loan term will affect your monthly payment amount and how much interest you’ll pay over the life of the loan. 

For example, say you take out a $5,000 loan with an 11% interest rate. Here’s how your loan term can affect how much interest you’ll pay:

  • Two-year loan term: Your monthly payment would be $233 and you’d pay $593 in interest.
  • Five-year loan term: Your monthly payment would be just $109, but you’d pay a total of $1,523 in interest — nearly $1,000 more than you’d pay with the shorter-term loan.

These potential savings are great, but only if you can afford the monthly payments of the short-term loan. You can use Credible’s personal loan calculator to get a better idea of what personal loan term might work for you. 

It can help to shop around for both short-term and long-term personal loans with different lenders before making a decision. Personal loan lenders offer different loan amounts, interest rates, fees, and repayment terms, so comparison shopping can help you make sure you’re getting the best loan and repayment terms for your financial needs. 

If you’re ready to apply for a personal loan, Credible lets you quickly and easily compare personal loan rates to find one that suits your needs.