Personal Loans

What to Know About Long-Term Personal Loans

If you need to borrow a large sum of money and want more time to pay it off, a long-term personal loan could help. Learn about long-term personal loans.
A woman uses her laptop computer to apply for a long-term personal loan
By Anna Baluch
Updated on: February 4th, 2022

Compared to a short-term loan that you can repay in a few years, a long-term personal loan has repayment terms of at least five years. While long-term personal loans can make your monthly payments more affordable, they may come with a higher interest rate.

Also, since you’re stretching the time you take to pay back the loan, you’ll pay more in interest over its life. Just like short-term personal loans, long-term loans are flexible, meaning you can use them for virtually any purpose.

What Are Long-Term Personal Loans Used For?

A long-term personal loan may be a good option in these scenarios.

  1. You want to cover a large expense

If you’re facing a home repair, medical bill, or another large expense, you may not have enough credit to cover it with a credit card. And even if you do, you might not be able to pay off the balance in time to avoid costly interest charges. With a long-term personal loan, you may get approved for up to $50,000 or more and pay it back over the course of five years or even longer.

  1. You prefer a lower monthly payment

High monthly payments can be stressful, especially if you’re on a tight budget. The lower monthly payment you’ll get with a long-term personal loan may give you some wiggle room. Since your finances are likely to change over time, lower monthly payments can provide you with some much-needed peace of mind.

  1. You’d like to consolidate a lot of credit card debt

You can use a long-term personal loan to consolidate credit card debt. With this strategy, you combine multiple-high interest debts into a single payment. If you’re overwhelmed with credit card debt, debt consolidation can make it more manageable. Debt consolidation may also save you thousands of dollars in interest.

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Pros and Cons of Long-Term Personal Loans

There are several benefits and drawbacks of long-term personal loans including:

Pros

  • Larger loan amounts: If you have a big expense and want to borrow a large sum of money, a long-term personal loan can be a smart choice. Long-term personal loans usually come with larger loan amounts than shorter-term loans.
  • Lower monthly payments: Since long-term personal loans offer longer terms, their monthly payments are lower and more manageable than shorter-term loans. This is a huge plus if you’d like some flexibility in your budget. You can use an installment loan calculator to get a ballpark figure of what your payments would be.
  • May improve your credit: As long as you make your payments on time and in full each month, a long-term personal loan can boost your credit score. Better credit can help you qualify for lower rates and favorable terms in the future.

Cons

  • Higher interest rates: Long-term personal loans are riskier than short-term personal loans. That’s why lenders typically charge higher interest rates when lending them out.
  • More expensive: Higher interest rates and longer terms make long-term personal loans more expensive than short-term loans. The good news is many lenders will let you pay them off early without penalty.
  • Can be difficult to find: Short-term personal loans are far more common than long-term personal loans. You may need to do a lot of research to find banks, credit unions, and online lenders that offer them.

When a Long-Term Personal Loan Might Not Be the Best Choice

If you’d like to save money on interest, a long-term personal loan doesn’t make sense. Since it will take you more time to pay off your loan, you’ll pay more in interest. A long-term personal loan will also keep you in debt for a longer period of time. If you can afford to make higher monthly payments, you can become debt-free faster with a shorter-term loan.

In addition, if you don’t have the best credit or a steady stream of income, you may have trouble qualifying for a long-term personal loan. Many lenders who offer unsecured longer-term loans that aren’t tied to collateral like your house or car have stringent credit and income requirements. Even if you do get approved for a longer-term loan, you may get stuck with sky-high interest rates.

What Do You Need to Apply for a Long-Term Loan?

To apply for a long-term personal loan, follow these steps.

  • Figure out what you can afford: Take a close look at your budget to get an idea of how much you can put toward loan payments each month. Make sure to consider what your budget may look like in the future as there’s a good chance it’ll change in a few years.
  • Gather documents: Each lender will have its own unique documentation requirements. Most, however, will ask you to provide a government-issued ID like a driver’s license and passport and proof of income in the form of pay stubs or tax returns.
  • Shop around: Not all lenders that offer long-term personal loans are created equal. Do your research and find several options that meet your budget and needs.
  • Compare options: Once you narrow down lenders, compare the interest rates, terms, and fees of each. Calculate how much each loan will cost you each month and over the course of its term.
  • Choose a loan: Now that you’ve done your research, select the best loan for your unique situation.
  • Complete an application: Most lenders will allow you to apply for a long-term loan online on their website. You can expect to share basic personal information like your name and email as well as financial details like your income and employment history.
  • Wait for approval: The lender will let you know whether you’ve been approved for the loan. Fortunately, most lenders will approve you within a few business days or even sooner.
  • Read the fine print and sign the agreement: After you get approved and receive the official loan agreement, read it carefully to make sure you understand everything before you sign on the dotted line.