What To Know About Long-Term Loans

Will a long-term personal loan work for your situation?

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Personal loans can help you finance major purchases, then repay on a predictable schedule, which is called the loan term. While personal loans are typically repaid over two to five years, a long-term loan gives you the option to spread your payments over a longer period of time.

Long-term loans may be an attractive choice if you're looking for a lower monthly payment. Many lenders offer online applications, so once you've narrowed down your options, you can apply for a loan online, submit your documents, and sometimes even find out if you've been approved within minutes. Before you commit to a long-term loan, weigh the pros and cons to be sure it's the best decision for you.

What Is a Long-Term Loan?

Technically speaking, long-term loans aren't a specific type of personal loan product. Rather, the phrase refers to loans with longer repayment periods, generally over 60 months. Longer terms aren't common with personal loans, so finding one may take some digging.

Long-term personal loans are those with repayment terms of more than 60 months. Other types of long-term loans include 15- and 30-year mortgages and auto loans with terms over 60 months. Another example of a long-term loan that isn’t a personal loan is a federal student loan, in which fixed payments on the standard repayment plan are made, up to 10 years.

Using a personal loan or another type of loan to refinance federal student loans will impact your repayment options and opportunity for loan forgiveness.

When Should You Use Long-Term Loans?

Personal loans with longer terms can be used for a variety of financing needs, including home improvement, education expenses for a K-12 student, medical expenses, and debt consolidation. You may want to use one when it fits your financial situation.

You Want or Need a Lower Monthly Payment

A long-term loan may be preferable if you can't afford a high monthly loan payment, or you want to keep your payment low to prevent straining your budget. For example, a personal loan worth $20,000 with an interest rate of 15% repaid over five years would cost $475.80 per month. If your loan term was longer, such as 10 years, the monthly payment would be lower: $322.67.

Although the difference in interest paid over time is significant—$8,547.88 versus $18,720.38—those needing a loan that aligns with their current financial situation may find the long-term loan is the better option.

Use a personal loan calculator to better understand how different loan terms will impact your monthly payment to find the best option for you.

You Need a Larger Loan

The loan amount you qualify for partly depends on how much you can afford to pay each month. Spreading your payments over a longer period of time lowers your monthly payment, which in turn allows you to potentially 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 establish a minimum amount for loans with long repayment periods. 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

Pros
  • Lower monthly payments

  • More time to pay

Cons
  • Typically higher interest rates

  • Higher total cost

Pros Explained

  • Lower monthly payments: Stretching your loan over a longer period of time 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 be in a rush to pay off the debt quickly, unless you can afford to.

Cons Explained

  • Typically higher interest rates: Some lenders may only offer long-term loans with a higher interest rate, even if you have good credit.
  • Higher total cost: Because the loan is spread out over a longer time frame and the interest rate is higher, the total cost of borrowing the loan will be higher than if you chose a loan with a shorter term.

Your exact interest rate depends on the loan amount, loan term, and your credit score.

Costs of Long-Term Loans

The costs associated with borrowing 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 be applied if you sign up for automatic payments.

Origination fees may also be tacked onto personal loans. This additional cost—which could be between 1% and 8% of the loan amount, depending on the lender—is what many lenders charge for loan processing, underwriting, funding the loan, and associated administrative services.

Potential Cost of a Long-Term Loan

Here’s a real-life example of a long-term loan currently available on the market. Online lender LightStream offers long-term loans of up to 144 months (12 years). According to its website, LightStream’s interest rates on a $30,000 loan that would be used for home improvement could range from 5.49% to 20.49% APR (annual percentage rate) depending on your repayment term and credit standing.

LightStream states its lowest rates are extended to borrowers with excellent credit scores—800 and above—who are also enrolled in its AutoPay program. There are no origination fees or other fees associated with a LightStream loan, making it an attractive option for those who meet the qualifications.

Here’s a hypothetical example of how a long-term loan of $30,000 could work with the same interest rate across different loan terms. The monthly payment decreases as the loan term increases, but the amount of total interest you pay over the life of the loan increases, too.

Loan Term APR Monthly Payment Total Interest Paid
5 years 6.49% $587 $5,211
6 years 6.49% $504 $6,299
7 years 6.49% $445 $7,408
12 years 6.49% $300 $13,260

Where To Find Long-Term Loans

Long-term personal loans are available from a variety of lenders, all with varying rates, terms, and eligibility requirements. Here are a few to consider.

Banks

Banks that offer personal loans are a good place to start your search for a long-term loan. Some banks may offer higher loan amounts or extend interest rate discounts for existing customers. You may need good credit to qualify. For example, Wells Fargo offers personal loans of $3,000 to $100,000, with terms as long as 84 months (seven years).

Credit Unions

Credit unions have a reputation for offering lower interest rates on loan products, which allows borrowers to save money on interest costs. Borrowers with fair or poor credit may have a better chance of getting approved at a credit union. However, you’ll need to become a member before applying. For example, Coastal Credit Union offers personal loans of up to $60,000 with terms as long as 120 months (10 years).

Online Personal Loan Lenders

As mentioned above, LightStream is an online lender that offers personal loans with terms up to 12 years (144 months) and loan amounts of up to $100,000 for well-qualified applicants. LightStream doesn’t offer preapproval, so you'll need to be in a strong financial position to get approved. It may be worth considering if you have a high credit score, sufficient income and assets, and a proven track record of on-time payments.

Borrowers with low credit scores may have more limited options for long-term loans. Online lender Upgrade may be one option. You may be able to 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 whether you prequalify on its website. Beware though: Upgrade personal loans come with an origination fee between 2.9% and 8% of the loan total (which is then deducted from the loan amount) and the interest rate could be as high as 35.97%.

Shop around and compare loan options before making a decision. There are loan options for all types of borrowers, so consider your income, credit score, and more before applying.

Alternatives to Long-Term Loans

If the cons outweigh the pros for you, there are alternatives that may help meet your financing 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 make minimum payments or more if you can afford it. On the downside, your credit limit may be lower than what you could borrow with a personal loan. And because there's no fixed repayment plan, you could end up paying more in interest—the average credit card interest rate was 20.25% as of August 2021, 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 an option if you qualify and can afford the monthly payment. You’ll have more borrowing capacity than a credit card and the same fixed monthly payments with a set repayment schedule as a long-term loan. The shorter repayment period also means you'll save money in 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 tap into equity you've accumulated in your home over the years. Home equity loans often have lower interest rates than other types of loans and may also come with tax benefits. A home equity line of credit, or HELOC, also leverages your home equity, but offers you flexibility to carry a revolving balance rather than using a fixed installment loan. But remember: Borrowing against your home equity puts you at risk of losing your home if you can't make payments.

Frequently Asked Questions (FAQs)

What assets typically collateralize long-term loans?

Secured long-term loans are often collateralized with a house or home equity, vehicle, or investment or savings accounts. Collateral can make it easier to get approved for higher loan amounts, better interest rates, and longer repayment periods.

How long of a term can student loans be?

Student loan terms can be up to 30 years depending on the loan type, repayment plan, and the loan amount. Federal student loans on a standard repayment plan have a 10-year payment term, while consolidation loans on a graduated repayment plan can be paid up to 30 years.

Which carry better interest rates, long-term or short-term loans?

Short-term loans may have better interest rates, but it also depends on other factors, such as your credit score. Loans with longer terms tend to have higher interest rates, which results in more interest paid on the loan over time.