Image of man outside coffee shop, smiling at personal loan options on laptop screen.

Long-Term Personal Loans: What You Should Know About Longer Repayment Terms

Hanna Kielar5-Minute Read
December 08, 2022

Share:

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 lasts 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 instances like this, but having more time to pay back the loan will likely end up costing you more in the long run. Let’s take a closer look at how long-term personal loans work and consider their costly drawbacks.

What Is A Long-Term Personal Loan?

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

Because of the longer loan term, a lender may charge higher interest rates. However, since the monthly payments extend over a lengthier period, you’ll likely have a lower payment.

How Long Are Personal Loan Terms?

Personal loan terms typically run 12 – 60 months, or 1 – 5 years. Borrowers can have some input in the details of a loan’s repayment, so don’t hesitate to let your lender know if you think you’ll need a longer repayment term. Just make sure to consider life’s unpredictability when deciding whether an extended repayment term is right for you.

Why Long-Term Personal Loans Are Less Common

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

Lenders only make money if you pay back the loan with interest. Personal loans are unsecured, for the most part, and the longer the term of the loan, the more risk the lender is taking on. Most lenders don’t want to assume extra risk, and lenders that are willing to do so want to make sure it’s worthwhile.

When A Long-Term Personal Loan Makes Sense

Personal loans are used for many reasons ranging 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 always pay off your long-term loan early and save on interest.

Do Long-Term Personal Loans Cost More Than Short-Term Loans?

The answer to the above question is generally, yes. That’s because the borrower will have to pay more in interest to assure the lender that they’re not a risk, and because the borrower will be paying interest for a much longer time. Let’s look at some numbers.

Assume that you need $25,000 to consolidate your credit card debt, with an annual percentage rate (APR) of 13.26%. Take a look at the table below to see how much it could cost you with different term lengths.

(Note that these examples include an origination fee of $500. That amount is paid out of the loan proceeds, so a borrower would need to borrow $25,500 to clear $25,000.)

Loan Amount

Term

APR

Monthly Payment

Total Interest Paid

Total Amount Paid

$25,500

36-month

13.26%

$862.39

$5,546.14

$31,046.14

$25,500

60-month

13.26%

$583.60

$9,516.18

$35,016.18

$25,500

72-month

13.26%

$515.40

$11,608.48

$37,108.48

$25,500

120-month

13.26%

$384.66

$20,659.55

$46,159.55

As you can see, a 120-month (10-year) term can end up costing you thousands of dollars more than 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.

Borrowers can refer to our loan repayment calculator and see how much their monthly payment will be if they pay a loan back over 36 months as opposed to 60 months.

Can You Get Long-Term Personal Loans With Bad Credit?

If you have a low credit score, you may not be able to qualify for a more favorable interest rate, and you may end up with a high APR – if you’re approved at all. From a lender’s point of view, approving a 120-month loan for a person with poor credit would be a huge risk, even at a higher interest rate.

If that’s your situation, you may be better off speaking with a credit counselor about ways to improve your credit before you consider any type of personal loan.

Pros And Cons Of Long-Term Personal Loans

Before you consider applying for a long-term personal loan, make sure you understand the following benefits and drawbacks:

Pros

  • You can repay the loan over a longer period of time.
  • You can borrow a larger loan amount.
  • Monthly payments may be lower than with a shorter term.

Cons

  • Long-term loans tend to have higher interest rates.
  • You’ll pay more in interest over the life of the loan.
  • Many lenders don’t offer long-term personal loans.

How To Get A Long-Term Personal Loan

You can generally apply for a personal loan with traditional banks, credit unions and online lenders, but it’s always best to inquire about a lender’s long-term loan offerings. If a long-term personal loan is the best option for your situation, follow these steps to successfully get a loan:

  1. Keep tabs on your credit and budget. Check your credit report to see where your credit score stands and what loans you may qualify for. 
  2. Determine how much you need. Consider what you’re using the loan for and how big of a loan amount you require. If you want to borrow a large amount, a longer loan term could make sense.
  3. Compare lenders. Shop lenders and compare the rates and terms they offer. It can be difficult to find lenders offering long-term personal loans, so this could potentially shrink your pool of lenders to choose from.
  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 find you want a shorter loan term somewhere down the road, you can look into refinance options for your personal loan.

Alternatives To Long-Term Personal Loans

Here are some alternatives to explore if a long-term loan doesn’t work for your situation.

Home Equity Loan

Home equity loans are similar to personal loans in many ways, but they’re secured by the equity in your home. Terms for home equity loans are generally longer than personal loans, lasting up to 30 years and creating lower monthly payments for you. The biggest drawback? If you stop making payments on 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 and 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, cards often have a very high interest rate – the national average being around 17%. You may be able to sign up for a card with a 0% APR introductory period where you can make interest-free payments for a limited time. Introductory periods typically only last 6 – 21 months, though, so this wouldn’t work well for long-term financing.

Cash-Out Refinance

A cash-out refinance lets you get a new mortgage and generally take out up to 80% of your home’s value in the form of cash. However, the amount you can take out is influenced by the amount of equity you have and the type of refinance loan (VA refinances allow you to take out up to 100% equity, for example). As is typical with any type of mortgage refinance, you’ll likely have to pay closing costs and go through the underwriting and appraisal process again. Additionally, you won’t receive your payout until 3 – 5 days after closing, so you should probably consider other options if you need money immediately.

Final Thoughts

If you feel like 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. Make sure you know how large of a loan you need and whether you can afford it, and be prepared for the extra costs that typically come with paying over a longer period of time. Review all the pros and cons, too, and consider possible alternatives.

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

Ready To Improve Your Financial Life?

Apply for a personal loan today to consolidate your debt.

Hanna Kielar

Hanna Kielar is a Section Editor for Rocket Auto℠, RocketHQ℠, and Rocket Loans® with a focus on personal finance, automotive, and personal loans. She has a B.A. in Professional Writing from Michigan State University.