What you need to know about long-term loans
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Personal loans can help you finance your major purchases, then pay them off on a predictable schedule called the loan term. While personal loans are typically repaid over two to five years, a term loan allows you to spread your payments over a longer period of time.
If you're looking for a lower monthly payment, long-term loans can be an attractive option. Many lenders offer online applications, so once you've narrowed down your options, you can submit your documents and sometimes even find out if you've been approved in minutes. Before taking out a long-term loan, weigh the pros and cons to make sure it's the best decision for you.
What is a long term loan?
Technically, long-term loans are not a special type of personal loan product. More precisely, this phrase refers to loans with a longer repayment period, usually more than 60 months. It's not common with longer terms, so finding one can take some research.
Long-term personal loans are loans with a maturity of more than 60 months. Other types of long-term loans include 15- and 30-year mortgages and car loans over 60 months. Another example of a long-term loan that is not a personal loan is a federal student loan, where fixed payments are made over a standard repayment plan for up to 10 years.
Note
Using a personal loan or another type of loan will affect your payment options and your options for loan forgiveness.
When should you use long term loans?
Personal loans with longer terms can be used for things like home improvements, K-12 student education expenses, medical expenses, and debt consolidation. You may want to use it when it suits your financial situation.
You Want or Need a Lower Monthly Payment
If you can't afford a high monthly loan payment or want to keep your payment low to avoid straining your budget, a long-term loan may be preferable. For example, a $20,000 personal loan paid over five years at 15% interest would cost $475.80 per month. If your loan term was longer, say 10 years, the monthly payment would be lower: $322.67.
While the difference in interest paid over time is significant — $8,547.88 versus $18,720.38 — those who need a loan to fit their current financial situation may find a long-term loan a better option.
Note
Use a to better understand how different loan terms will affect your monthly payment to find the best option for you.
You need a bigger loan
The loan amount you qualify for depends in part on how much you can afford to pay each month. Spreading your payments over a longer period lowers your monthly payment, which in turn allows you to qualify for a higher loan amount. If your financial needs are relatively high, a long-term personal loan may be the best option for a large loan amount.
Some lenders set a minimum amount for long-term loans. For example, Navy Federal Credit Union has a $25,000 minimum for loans longer than 60 months.
Pros and cons of long-term personal loans
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Low monthly payments
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More time to pay
The positives were explained
- Low monthly payments: A longer loan extension gives you the benefit of a lower monthly payment. This makes the loan more affordable and gives you flexibility in your budget.
- More time to pay: A longer term means you don't have to rush to pay off your debt quickly if you can't afford it.
Cons explained
- Typically higher interest rates: Even if you have good credit, some lenders may only offer long-term loans with high interest rates.
- Higher total cost: Since the loan is spread over a longer period and the interest rate is higher, the total cost of taking out the loan will be higher than if you choose a shorter term loan.
Note
Your exact interest rate depends on the loan amount, loan term and your credit score.
Costs of long-term loans
Costs associated with obtaining a long-term loan vary by type. The interest rate is often based on what the loan will be used for, as well as your credit score and history. In some cases, a discount may apply if you sign up for automatic payments.
An origination fee can also be applied to personal loans. This additional cost, which can range from 1% to 8% of the loan amount depending on the lender, is a cost that many lenders charge for loan processing, underwriting, loan financing and related administrative services.
The potential value of a long-term loan
A real-life example of a long-term loan currently available in the market. Online lender LightStream offers long-term loans of up to 144 months (12 years). According to its website, interest rates on LightStream's $30,000 home improvement loan can range from 6.94% to 25.29% APR (annual percentage rate), depending on your repayment term and credit standing.
LightStream says its lowest rates apply to borrowers with excellent credit scores (800 and above) who also participate in the AutoPay program. There are no origination fees or other fees associated with a LightStream loan, making it an attractive option for those who qualify.
Here's a hypothetical example of how a $30,000 long-term loan might work under different loan terms with the same interest rate. As the term of the loan increases, the monthly payment decreases, but the total amount of interest you pay over the term of the loan also increases.
| Loan period | APR | Monthly Payment | Total Interest Paid |
| 5 years | 6.49% | 587 dollars | 5211 dollars |
| 6 years | 6.49% | 504 dollars | $6,299 |
| 7 years | 6.49% | 445 dollars | 7408 dollars |
| 12 years | 6.49% | 300 dollars | $13,260 |
Where to find long term loans
Long-term personal loans are available from a variety of lenders, all with different rates, terms and eligibility requirements. Here are a few to consider.
Banks
Banks that offer personal loans are a good place to start your long-term loan search. Some banks may offer higher loan amounts or extend interest discounts for existing customers. You may need it. For example, Wells Fargo offers personal loans of $3,000 to $100,000 for 84 months (seven years).
Credit unions
Credit unions have a reputation for offering lower interest rates on loan products, allowing borrowers to save on interest costs. Borrowers with fair or poor credit may have a better chance of being approved at a credit union. However, you must be a member before applying. For example, Coastal Credit Union offers personal loans of up to $60,000 with terms up to 120 months (10 years).
Online personal loan lenders
As mentioned above, LightStream is an online lender that offers personal loans for well-qualified applicants with loan terms of up to 12 years (144 months) and loan amounts up to $100,000. LightStream does not offer pre-approval, so you must be in a strong financial position to get approved. It's worth considering if you have a high credit score, sufficient income and assets, and a proven track record of making timely payments.
Borrowers with low credit scores may have more limited options for long-term loans. Online lender Upgrade may be an option. You can qualify for a loan amount of up to $50,000 for 84 months (seven years) with a minimum credit score of 580, and you can find out if you qualify on its website. Be careful, though: Advanced personal loans come with an origination fee ranging from 1.85% to 9.99% of the total loan amount (then deducted from the loan amount), and the interest rate can be as high as 35.99%.
Note
Shop around and compare loan options before making a decision. There are loan options for all types of borrowers, so check your income, credit score, etc. before applying.
Alternatives to long-term loans
If the cons outweigh the pros for you, there are alternatives that can help meet your financial needs.
Credit Cards
Compared to loans, credit cards are relatively easy to apply for and give you a quick approval decision. You'll have the flexibility to pay the minimum or more if you can afford it. On the downside, your credit limit may be lower than what you can take out with a personal loan. Because there's no fixed repayment plan, you could end up paying more in interest — it was 22.70% as of August 2023, according to data collected and analyzed by The Balance — especially if it takes you several years to pay off the credit card.
Short-term personal loan
A short term personal loan is always suitable if you can afford the monthly payment. You'll have more borrowing capacity than a credit card and the same fixed monthly payments with a fixed repayment schedule as a long-term loan. A shorter repayment term also means you'll save on interest over the life of the loan.
Home equity loan or line of credit
If you're a homeowner, you may have the flexibility to use the equity you've built up in your home over the years. often have lower interest rates than other types of loans and may have tax benefits. A , also uses your home equity, but offers the flexibility to carry a revolving balance instead of using a fixed installment loan. But remember: Borrowing with home equity puts you at risk of losing your home if you can't make the payments.
Frequently Asked Questions (FAQ)
What assets typically secure long-term loans?
It is often secured by a home or home equity, a vehicle, or investment or savings accounts. Collateral can make it easier to get approved for higher loan amounts, better interest rates, and longer repayment terms.
How long can student loans last?
A student can have up to 30 years depending on the type of loan, repayment plan and loan amount. Standard repayment plan federal student loans have a 10-year repayment period, while staggered repayment plan consolidation loans can be repaid in up to 30 years.
Which has better interest rates, long or short term loans?
Short-term loans may have better interest rates, but this depends on other factors, such as your credit. Longer term loans have higher interest rates, which results in paying more interest on the loan over time.
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