Long-Term Personal Loans: What To Know About A Lengthier Repayment Term

Taking out a personal loan generally isn’t a long-term commitment. Ideally, you’ll borrow the amount you need for a purchase or project and then repay the loan over the course of its term. A typical personal loan term is no more than 60 months. But depending on your financial situation, you may need more time to pay back the loan amount.

Some lenders offer long-term personal loans for such cases, but taking more time to repay the loan will cost you more in the long run. Let’s take a closer look at how long-term personal loans work and consider their benefits and drawbacks.

“Long-term personal loan” doesn’t refer to a specific type of loan. Instead, it simply refers to a loan with a minimum length for its repayment term. A long-term personal loan has a term of 72 months or longer. For example, some lenders offer 120-month personal loans.

Due to the longer loan term, a lender may charge a higher interest rate. However, the payments extend over a lengthier period, so you’ll likely have a lower monthly payment.

How Long Are Personal Loan Terms?

With a personal loan, terms typically run 12 – 60 months, or 1 – 5 years. A borrower’s preferences can influence the length of a repayment term, so don’t hesitate to tell your lender if you need more time than is available with a standard loan. Just be sure to consider life’s unpredictability as you decide whether an extended term is right for you.

Why Long-Term Personal Loans Are Less Common

Long-term personal loans tend to be harder to find than loan options with a term between 12 – 60 months. Many lenders approve loans based in large part on credit history, but they can’t predict your long-term financial health. In 10 years’ time, you could be making lots of money, or you could be living paycheck to paycheck.

Lenders only make money if you pay back the loan, plus interest. Most personal loans are unsecured, which means the borrower doesn’t have to offer up any form of collateral for the lender to approve them. And, the longer the loan term, the more risk the lender takes on, since the period of time during which a borrower could default on payments is extended. Some lenders may not want to assume extra risk, and lenders willing to do so may want to make sure it’s worth it.

Personal loans are used for many reasons, from home improvements to debt consolidation to emergency expenses and more. Getting a personal loan with a longer term may make sense if:

• You need to borrow a large amount, perhaps $50,000
• You can’t afford a large monthly payment
• Your income is seasonal or commission-based

Unless your lender charges a prepayment penalty, you could pay off the loan early to save on interest.

The answer to the above question is a rather definitive “yes.” If you get a long-term loan, a lender might assign you a higher interest rate to offset their risk, but, at the very least, you’ll pay interest for a longer time than you would with a more traditional personal loan.

Let’s say you need $25,000 to consolidate your credit card debt and you’re approved for a loan with a 13.26% annual percentage rate (APR). Take a look at the table below to see how much it could cost you with different term lengths.

(Note that these examples include a $500 origination fee. That amount comes out of the loan proceeds, so you’d need to borrow $25,500 to clear $25,000.)

As you can see, a 120-month (10-year) personal loan can end up costing you thousands of dollars more than a loan with a 36- or 60-month term. That’s money you could otherwise save for a down payment on a new home, or a renovation to your current home.

You can use our loan repayment calculator to get an estimate of how much your monthly payment may be if you pay off a loan in 36 months as opposed to 60 months.

If you have a low credit score, you may not qualify for a long-term loan, let alone one with a reasonably low interest rate. If you’re approved at all, you may end up with a high APR. Approving a 120-month loan for a person with poor credit can be a huge risk for a lender, even at a higher interest rate.

If that’s your situation, you may be better off speaking with a credit counselor first. They can help you find ways to improve your credit before you consider any type of personal loan. A good credit score may boost your eligibility for a loan with a longer term and a lower interest rate.

Before you consider applying for a long-term personal loan, be sure to keep in mind the benefits and drawbacks of this option, as summarized in the table below.

You can usually apply for a personal loan with a traditional bank, credit union or online lender. But before doing so, you’ll want to inquire about a lender’s long-term loan offerings. If a long-term personal loan is the best option for your situation, you can follow these steps to potentially get one:

1. Keep tabs on your credit and budget. Check your credit report and also check to see where your credit score stands and what loans you may qualify for.
2. Determine how much you need. Consider the reason you need a loan and how large of a loan you require. If you want to borrow an especially significant amount, a longer loan term could make sense.
3. Compare lenders. Shop lenders and compare the personal loan rates and terms they offer. Finding a lender with long-term personal loan options can be hard and shrink your pool of potential lenders.
4. Apply for a long-term loan. When you find a lender that works for you, submit a loan application with all the necessary documents.

If you conclude you want a shorter loan term at some point down the road, you can look into refinance options for your personal loan.

As mentioned, comparing lenders can help you find the best personal loan for you. Once you narrow your search to lenders offering long-term loans, take a closer look at the following:

• Interest rates: Weigh different lenders’ interest rates to ensure you get the lowest rate possible.
• Additional fees: Pay attention to whether lenders charge late fees, prepayment penalties or origination fees. If they charge extra fees of any kind, find out how much each is so you’ll know the loan’s total cost.
• Funding speed: Some lenders take longer than others to disburse loan funds. If you need money immediately, look for a lender that offers same-day funding.
• Loan amount limits: Make sure that any lender you consider offers sufficient loan amounts for your needs. Knowing this can help you avoid the hassle of applying for another loan if your first loan isn’t big enough. On the other hand, if a lender’s minimum loan amount is more than you need, you could end up taking on unnecessary debt.

Let’s explore some alternatives in case a long-term loan doesn’t work for your situation.

Home Equity Loan

Home equity loans are similar to personal loans in some ways, but they’re secured by the equity in your home. Since they’re secured loans, they tend to have a more competitive interest rate than an unsecured personal loan. Home equity loan terms are generally longer than personal loan terms, lasting up to 30 years, and they may require lower monthly payments.

The biggest drawback of a home equity loan? If you stop repaying the loan, your lender can take your home through the foreclosure process.

HELOC

A home equity line of credit (HELOC) is a form of revolving credit secured by your home’s equity. HELOC terms are split into draw and repayment periods. For a 30-year HELOC, your draw period may last 10 years, during which you can withdraw funds up to your credit limit. When the draw period ends, you’ll enter a 20-year repayment period. You must repay your outstanding balance – plus interest – before that period ends.

As with a home equity loan, you could lose your home if you fail to repay your balance in a timely manner.  

Credit Card

Unlike a personal loan, a credit card has no fixed repayment term, and you can borrow money as needed. However, credit cards often have a very high interest rate – the national average being over 21% as of November 2023.

You may be able to sign up for a card with a 0% APR introductory period. During that time, you can make interest-free payments toward your card balance. Depending on the card company, this period could last anywhere from 6 – 21 months, so a credit card may not work well for long-term financing.

Cash-Out Refinance

A cash-out refinance lets you get a new mortgage and often take out up to 80% or 85% of your home’s equity – the amount the house is worth minus the amount you still owe on your mortgage. However, the amount of equity you can take out could be even higher depending on the type of refinance loan. For example, a VA refinance will allow you to take out up to 100% equity.

As with any mortgage refinance, you’ll have to pay closing costs in one form or another, go through underwriting and likely go through the appraisal process again. Plus, you may not receive your payout until 3 – 5 days after closing. If you need fast funding, it may be worth considering other options.

If you think you need longer than the standard repayment term or want to borrow a larger loan amount, a long-term personal loan may be worth exploring. Just be sure to consider how large of a loan you need and whether you can afford the loan payments. Also, be prepared to take on the extra costs that come with paying over a longer period of time. Review all the pros and cons, too, and perhaps look into possible alternatives.

For a more standard 36- or 60-month personal loan, you can start the approval process today with Rocket Loans℠.