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Long-term personal loans offer longer repayment periods, sometimes up to seven years. But interest can accumulate. (iStock)
Personal loans generally have repayment terms of one to five years. But if you need the lowest possible monthly payment, or as long as possible to pay off a personal loan, you can look for a longer one than usual.
It’s important to understand how a longer repayment term will affect the overall cost of a personal loan. Here’s an overview of how long-term personal loans work, where to find one, and what you need to know about the pros and cons of loans with longer repayment terms.
What is a long-term personal loan?
While many lenders offer loans of up to 60 months (five years), some offer loans with terms of up to 84 months (seven years). Usually, long term loans work the same way as short term loans. You will repay the loan in monthly installments according to a defined repayment schedule. But long term loans usually have a lower monthly payment amount.
But while having more time to pay off a loan may seem like a good idea, there are caveats. Long-term personal loans generally have higher interest rates than shorter-term loans, although if you have great credit you may be able to get a lower interest rate. And, because you lengthen the time you take to repay the loan, you will also pay more interest.
Where can I get a long-term personal loan?
Longer-term personal loans are generally more difficult to find, but lenders may offer them for certain uses, such as financing home repairs or paying medical bills. Some banks, credit unions, and online lenders offer long-term loans, but not all.
- Banks may offer longer terms to existing customers in good standing. They can also offer lower rates on long term loans.
- Credit unions are owned by their members, so you must be a member to get a personal loan from a credit union. It can be difficult to find a credit union that provides long-term loans. Those who give long-term loans may limit how you use them, for example for home improvement.
- Online lenders provide a convenient and convenient way to find long term personal loans. But only a handful of online lenders offer longer term loans. And they may require that you have good to excellent credit to qualify for a long-term loan.
Credible makes it easy to compare the personal loan rates of several lenders.
Long-term personal loan lenders to consider
Some of the best lenders for long term loans are credible partners. But it is important to compare lenders in order to find the best choice for your needs.
Discover
- Loan amounts: $ 2,500 to $ 35,000
- Loan conditions : Three to seven years
- Minimum credit score: 660
LightStream
- Loan amounts: $ 5,000 to $ 100,000
- Loan conditions : Two to seven years (up to 12 years for renovation loans)
- Minimum credit score: 660
Marcus
- Loan amounts: $ 3,500 to $ 40,000
- Loan conditions : Two to seven years (up to 12 years for renovation loans)
- Minimum credit score: 660 (TransUnion FICO® score 9)
SoFi
- Loan amounts: $ 5,000 to $ 100,000
- Loan conditions : Two to seven years
- Minimum credit score: Do not disclose
How to get a long-term personal loan?
Each lender has eligibility criteria that you must meet to be eligible for your long term loan. Most require good to excellent credit, so working to improve your credit score, offer a guarantee, or get a co-signer can help if your credit doesn’t meet the lender’s minimum requirements. Here are some steps you can take to improve your chances of qualifying for a personal loan.
- Improve your credit. Lenders consider your credit score first when granting credit, determining your APR, or qualifying you for a long-term loan. Factors such as your credit payment history, credit mix, new credit applications, your credit utilization rate, and total debt are also important.
- Pay off other debts. When determining your eligibility for a long-term loan, lenders look at factors such as repayment history and any outstanding debts. They use this information to assess the risk of lending you. Paying off your current debt and paying your credit card, car, mortgage, and all other bills on time can make it easier to qualify for your loan without offering collateral.
- Improve your debt-to-income ratio. Your debt-to-income ratio (DTI) helps determine how much you can borrow. Lenders review your DTI to decide if you can take on more debt and make another monthly payment.
To improve your DTI, pay off or pay off your existing debt (if possible) and do not incur any new debt. You can also consider reducing your expenses by purchasing only what you need.
- Increase your income. Lenders also look at your employment history and income when deciding to offer (or not offer) a long-term loan. You could be in a better position if you can increase your income. If you are receiving alimony or child support, your lender may consider that as income. It’s worth checking out. You can also get a side job or have a part-time job for a season.
- Get a co-signer. If your credit or income does not meet the requirements of a lender, or if you do not have a long-standing relationship with a local bank, you may consider hiring a co-signer. Your co-signer will be asked to meet your lender’s requirements, and if you don’t make your payments, your co-signer becomes responsible for the loan.
- Offer guarantees. Personal loans are generally unsecured, which means that you don’t need any collateral to qualify for them. However, some lenders may offer higher amounts and longer terms if you secure your loan with assets as collateral.
Pros and Cons of Long Term Personal Loans
Like any financial product, long-term personal loans have their advantages and disadvantages.
Benefits of long term personal loans
- Get lower monthly payments compared to a short term loan.
- A longer-term loan can help you finance a large purchase or pay off a large expense.
- You could get a better rate than with a credit card.
- The loans are generally for much higher amounts.
- Long term loans are flexible to finance almost anything.
Disadvantages of long term personal loans
- Interest rates can be higher on long term loans.
- You may be charged fees such as origination fees or prepayment penalties.
- Interest accrues over the life of your loan.
- Not all lenders offer long term loans.
- It can be difficult to qualify.
When should I take out a long-term personal loan?
Say you want to make a large purchase or need a substantial amount of money to finance home renovations or pay medical bills. In this case, paying off the loan over a longer period usually means you will have lower monthly payments, which can be more manageable.
However, because the repayment period is longer, you will earn 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?
Besides the fact that a long term loan offers an extended repayment period, some lenders have minimum borrowing amounts for long term loans. While it may be tempting, if you don’t have the regular income to make the payments, you risk defaulting on your loan. It can damage your credit for years. Remember, it’s much easier to destroy your credit than it is to fix it.
You can learn more about personal loans and compare the rates and repayment terms of several lenders using Credible.
Alternatives to long-term personal loans
If you need to borrow a large amount of money or need a longer repayment term, take a look at these alternatives to a long term loan.
- 0% APR credit card – If you can qualify, a 0% credit card waives interest for a specified promotional period. As long as you pay before the promotion ends, you will avoid interest charges. But, if you don’t pay off the balance by the end of the introductory period, you might consider high interest on the remaining balance.
- Home equity loan – Home equity loans have a fixed interest rate and monthly payments, which will not change during the life of the loan. The amount you can borrow depends on the equity in your home. However, your home equity loan payment is on top of your mortgage payment, making your monthly payments much higher. Plus, if you don’t pay off the loan, your home is in jeopardy.
- HELOC – A Home Equity Line of Credit (HELOC) is similar to a Home Equity Loan in that you borrow against the equity in your home. It’s also kind of like a credit card, where you borrow only what you need, and the interest is compounded on the amount you borrow. However, like a credit card, you can be tempted to overborrow, and if interest rates go up, your payment goes up too. Plus, a HELOC could put your home at risk if you don’t pay off the line of credit.
- Cash-out refinancing – Like a home equity loan and HELOC, a cash refinance taps into the equity in your home. You can usually get a lot of money at low interest rates and longer repayment periods, but if you can’t make your payments and pay off your loan, you could lose your home to foreclosure.
Credible makes it easy to see your prequalified personal loan rates in minutes.
