If you’re thinking about taking out a personal loan and know that you’ll need an extended time to pay it back, or are requesting a large amount, then a long-term loan might be the best choice for you.
What is a long-term personal loan?
A long-term personal loan is usually defined as a loan that is between 5 to 7 years long. Long-term personal loans generally allow higher borrowing amounts and they may have lower interest rates than regular loans as they will take into account the extended loan period.
Long-term personal loans are usually secured loans, meaning your home or another asset is used as collateral in case you can’t continue to pay the loan. You can find long-term loans that offer either fixed or variable interest rate options. Fixed rate loans mean consistent repayment amounts, but variable loans give you the flexibility to pay back more when you are able to.
Why take out a long-term loan?
Due to the higher loan amounts, long-term personal loans are suitable for a variety of reasons including:
- A car
- Ongoing education costs
- Renovations to existing homes
- Long holidays
Pros and cons of long-term loans
Like any loan, a long-term loan has both positive and negative aspects. One positive aspect is, because the monthly repayments are smaller, long-term loans are suitable for people who can’t afford to make large monthly payments. Due to the extended term, the minimum monthly payment will always be lower than a standard loan.
One of the drawbacks of long-term loans is that, over the term of the loan, you will pay more in interest overall than you would have with a shorter term. Also, paying the loan off early can attract fees. However, in certain situations, it is sometimes still worth considering.
When choosing a loan provider, you should still do your research and look for one with lower fees. Whichever loan you choose, you always need to consider your personal financial situation and what will be right for you. Some things to consider include:
- What monthly payment can you afford?
- How long do you want to commit to a loan?
- How much do you want to borrow?
All of these aspects are things that you need to take into account before committing to a long-term loan.