Things to know about long-term loans

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In a Nutshell

If you want to borrow money and take your time repaying it, a long-term personal loan could be an option. Long-term loans can mean lower, more affordable monthly payments than you’d have to make on a loan with a shorter repayment term. The catch is that long-term loans can cost you more in the long run.
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With so many different kinds of loans available, it can be tough figuring out which one might be right for you. A long-term personal loan is one option to consider if you want a smaller monthly payment for the amount of money you want to borrow.

But there’s a trade-off for those lower monthly payments: In the long run, long-term loans can cost a lot more than shorter-term loans. Why? Because, generally, the longer the loan term, the more interest you end up paying over the (longer) life of the loan.

Here’s more of what you need to know.

What do we mean by ‘long-term’ loan?

There’s no official rule for what makes a loan “long term” — but, in general, personal loans with repayment terms of 60 to 84 months (five to seven years) are considered long term.

Student loans and mortgages are other types of long-term loans that commonly have even longer repayment periods — from around 10 to 30 years.

When it comes to personal loans, repayment periods longer than seven years can be harder to find, but some lenders do offer them for certain types of financing, like home improvement.

When to consider long-term loans

Think about the amount of money you need to borrow and your monthly budget. You might want to consider a long-term personal loan if …

You need to borrow a large amount

If you’re facing medical bills, home repairs or other large expenses, you might not have enough available credit on a credit card to cover the costs. Or maybe you have enough credit, but you won’t be able to pay off the balance fast enough to avoid super-high interest charges. A payday alternative loan — typically available in amounts up to $2,000 — may not be enough to meet your needs, either.

With a long-term personal loan, you may be able to borrow up to $50,000 or more and pay it back over a period of five to seven years or even longer, depending on your credit history and the lender’s requirements.

You want a lower monthly payment

With a longer period of time to repay your loan, your monthly payments are usually lower than if you borrowed the same amount over a shorter term.

But, again, keep in mind that with a long-term loan, you’ll likely be paying a greater amount overall because you’ll paying interest throughout the longer life of the loan.

Here’s an example of a basic estimate of what your monthly payments could be for a $30,000 fixed-rate loan with a 10% interest rate — looking at how different term lengths affect total cost.

$30,000 loan at 10% interest rate ($0 fees/costs)

LengthMonthly paymentTotal amount paidTotal financing cost
3 years$968$35,000$5,000
5 years$637$38,000$8,200
7 years$500$42,000$12,000

In this example, you can see that with a three-year loan, the monthly payment is pretty steep, but you save about $7,000 in interest in the long run compared to a seven-year loan.

When it comes to loans, the interest rate — in the form of a percentage — is the cost the borrower pays for the money itself. Meanwhile, the APR for a loan combines that interest rate with fees or other added costs to give you a clearer picture of how much you’re paying for a loan over the course of a year. When you’re shopping for loans, make sure you check both the interest rate and APR to get a better idea of what you’ll pay for the loan.

Reasons to avoid long-term loans

Long-term loans have longer repayment periods — which means they may be helpful in getting your debt under control with smaller monthly payments. The big downside is that it can keep you in debt that much longer.

You might want to steer clear of a long-term loan if you can afford shorter-term alternatives. If you’re considering consolidating your debt into a long-term personal loan, you may want to consider applying for a balance transfer credit card instead. Just be sure to understand how a balance transfer works before deciding whether to go that route.

Another drawback of certain long-term personal loans is they can be difficult to qualify for — especially if they are unsecured, meaning no collateral is required. Instead, a lender will look at factors like your financial history and credit to make a lending decision. If your credit isn’t great, you may need to consider other options.

With secured debt, the loan is backed by an asset, or collateral, that lenders can seize if you default on your loan. Unsecured debt is not backed by collateral, so lenders don’t have the same recourse.

How to apply for a long-term loan

If you’ve decided to apply for a long-term personal loan, the process can be fast, depending on the lender.

With some lenders, you can start by applying for prequalification, which usually involves a soft credit check — meaning it won’t affect your credit scores.  This process can be especially helpful if you’re applying for a loan with bad credit and you want to see what your options could be.

If you prequalify, you’ll typically be able to see estimated loan offers from the lender or multiple lenders. And if you decide on one of those offers, then you can apply formally — an action that will typically trigger a hard inquiry into your credit history. Just remember that prequalifying isn’t a guarantee of approval, and the terms you’re offered if approved after submitting a formal application can be different from the terms you prequalified for.

If you’re unable to get prequalified, it’s a good idea to find out why. Ask the lender — you may be able to make changes that will improve your chances of qualifying in the future. Also, make sure to review your credit reports. You may find a potential error on one of your reports that might be negatively impacting your profile.

There’s no quick fix — building your credit health takes time. But the most important behaviors are to pay your bills on time (and, if possible, in full) and reduce the amount of your debt. It also helps to check your credit reports regularly. Reviewing your reports can help you learn about potential errors that you can dispute with the credit bureau(s).

Bottom line

Long-term loans can be helpful if you need to borrow a large sum of money and are looking to repay it over a longer period of time. But because they can cost more over the long term, it’s a good idea to consider less-expensive alternatives that could work better for your situation.