Long term personal loans can be excellent methods of receiving personal funding for whatever purpose you may need. So long as you are capable of taking on the financial burden associated with these types of loans, you could potentially see great benefit. Let’s dive more into what these loans are and how to get them:
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What is a long-term personal loan?
Personal loans are a highly flexible type of loan that can be used for almost any purpose you seek. In most cases, personal loans are typically smaller sums of money that are repaid within three-to-five years. However, long-term personal loans are larger sums of money borrowed, broken down into reasonable monthly payments to be repaid over a longer tenor.
As opposed to a standard personal loan that will likely be paid off within five years, a long-term personal loan can be known to have a tenor of up to 15 years. The downside to long-term personal loan tenors, however, is that the interest rate is extended over the span of time as well.
Related: What is a Personal Loan?
How does a long-term loan work?
Long-term loans work the same as standard loans. When you determine the amount you need to borrow and go through the application process, you will be offered the loan following approval. This loan will include the following parts:
- Principal: This is the sum total of the loan being borrowed
- Interest rate: This rate is the amount you will pay on top of monthly payments contributing to the principal amount
- Monthly payments: These agreed upon payments will be paid monthly and will have the interest amount included
- Tenor: This is the lifespan of the loan
After the approval of your loan, you will be responsible for paying back the agreed upon amounts monthly.
Where can you find long-term personal loans?
When seeking a long-term loan, there are three primary sources you can turn to for an application:
- Credit Unions: In many cases, you will need to become a member of a credit union to take advantage of loan opportunities. However, if you are a member you will gain access to, typically, low-rate and flexible loan offers.
- Banks: Traditional banks will likely offer long-term personal loans at competitive rates.
- Online Lenders: Online lenders work similarly to credit unions or banks but allow you to receive long term loans online.
Learn more: Best Personal Loans in 2023
How to get a long-term personal loan?
The process of getting a personal loan can be done in just a few simple steps:
- Identify how much money you will need to request for the loan
- Gather all necessary personal and financial information such as your income streams, financial history, current address, and more
- Compare different loan offers from varying lenders to see different options available to you
- Choose a loan offer that works for you
- Apply and receive approval
- Upon approval, begin your repayments
Reasons to avoid long-term personal loans
While personal loans with long term payments can be beneficial for some people, they are not right for everyone. The inherent longer-term payment means that you will be paying interest for many more years than you may be willing or able to. If you can afford shorter-term financing methods, they may be more viable and financially smart.
Considering the length of tenor on personal loans with longer repayment terms, it may also be more difficult to qualify for this financing. If your credit isn’t great, receiving an unsecured long-term personal loan can be challenging.
How a long-term loan could affect your finances?
As with any other loan, you are taking on a form of debt that will reduce your overall discretionary income. You will be responsible for making on-time payments every month for years. In addition to this, long-term personal loans will impact your credit score, for better or worse, depending on whether or not you make your payments.
For the best impact on your finances, never miss a payment on your loan and aim to identify the lowest possible interest rate offered by varying lenders.
When should you consider a long-term personal loan?
For borrowers who need more flexibility and time with their loan payments, as well as for borrowers who are seeking larger sums of money, a long-term personal loan can be beneficial.
Given the long-term loan time period, this financing method can be good for those whose income is not as predictable in the near future. For example, seasonal-based salaries can make consistent repayments challenging, but lower monthly payments with long-term personal loans can help.
Who long-term personal loans are best for?
In general, long-term personal loans are best for those seeking a large sum of money for a specific purpose, such as home renovation, credit card consolidation, or medical emergencies. Assuming you can pay back the loan for the entirety of the loan’s life, it can be an excellent source of financing.
How to qualify for a long-term personal loan?
Qualifying for a personal loan requires a few key factors:
- Historically stable stream of income
- Credit score above 600
- Strong history of prior credit repayment
- A low debt-to-income ratio
While the above factors are not the only requirements for being approved for a personal loan, they are some of the most prominent. When applying, be sure that you have all required information ready to submit and that you can answer any potential questions lenders may have regarding your application.
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Pros and cons of long-term personal loans
As with any loan type, long-term personal loans have a number of pros and cons:
- Lower monthly payments.
- The possibility of credit score increases with on-time payments.
- Allows you to borrow more debt.
- Potentially lower interest rates than other financing methods.
- Longer payment of interest.
- It is more difficult to get a loan with worse credit.
- Higher risk on behalf of the lender due to loan tenor.
Alternatives of long-term personal loans
For one reason or another, you may have come to the conclusion that long-term personal loans aren’t right for you. Should this be the case, there are a number of viable alternatives you can consider:
1. Balance transfer credit cards
A balance transfer credit card allows you to transfer your credit card debt from multiple cards to a single card. This allows you to consolidate all your debt into one single payment per month along with one single interest rate (after an intro period). Balance transfer credit cards often offer an introductory 0% interest rate for a year or more that allows a holder to pay off their debt without incurring more interest.
Learn more: Balance Transfer Credit Cards
2. Home equity loans
Another option for those straying away from personal loans with long terms, home equity loans are a viable option. This type of loan allows a person to borrow money by using the value of their home’s equity as collateral. With the value being determined by an appraiser, a borrower can receive their funds with amounts up to 80-90% of the home’s determined value.
3. Home equity line of credit
A home equity line of credit works in exactly the same way as a home equity loan, with the difference being that a borrower isn’t offered all of the money up front. As is the fashion of lines of credit, a borrower has the ability to borrow up to a certain amount on the line of credit and, if paid back, will have access to the full amount again.
4. 401(k) loans
Depending on your employers’ plans, you may be eligible to borrow as much as 50% from your own retirement account to use as a loan. Keep in mind, however, that you are borrowing from your retirement funds and, if unable to pay them back, you may lose your future savings.
Learn more: A 401(k) Loan
Long-term loans for bad credit
If the reason you are looking at loan alternatives is due to a lower than average credit score, there is another option available to you. There are certain lenders who specialize in long term personal loans for bad credit, but be aware that the interest rate you are offered may not be favorable compared to other alternatives.
How to compare long-term personal loan lenders?
Comparing different personal loan offers is all about looking at the different terms offered to you. Begin with breaking down the various interest rates proposed and determine what is a competitive rate for the personal and financial details you provided. Examine the repayment terms and length of time that a lender offers you, along with what the total repayment amount of the loan will be.
Interest rates: Borrowers with lower credit scores may be charged higher interest rates, but it varies from lender to lender.
Loan amounts: Many lenders don’t to smaller loans under $600, so you may need a different option.
Repayment terms: One of the benefits of choosing a personal loan to pay medical bills is that you can choose the loan term. It usually ranges between one and 7 years.
Fees: Check the origination fees and any monthly charges you’ll incur during the life of the loan. Use those as a comparison point between lenders.
Finally, be aware that some lenders will try to add fees on top of your loan, such as an origination fee, whereas other lenders will not. Long term loan fees can quickly add up.
How do I apply for a long-term personal loan?
Applying for a personal loan is a simple multi-step process:
- Determine the exact loan amount you need by evaluating the purpose of the loan and totaling all costs associated with the reason
- Gather all pertinent financial and personal information to be used by the lender during the application process
- Compare different lenders’ offerings and interest rates
- Select a lender and submit all application information
- If approved, begin your repayments
To apply for a long-term loan is the easy part. Whether you are looking at a long-term loan vs. a short-term loan, consider the fact that you will be making repayments for years. Aim to never miss a payment, and always make payments in full.
If you make all payments on time and in full, your credit score will likely improve in the long-term. However, if you begin to miss payments over the course of your loan, your credit score may decline. This is a major reason why people wonder is a long term loan better than a short term loan, considering there is more time to potentially miss a payment with the former.
In general, 15 years is typically the longest personal loan term you will see for larger sums of money borrowed. While this can vary depending on the type of long-term loans with low monthly payments, this is usually the longest lenders will offer.
Long term loan rates may be lower than short term loan rates or those offered by other financing methods. However, keep in mind that you will be responsible for paying this interest rate for far longer than other types of debt financing. There also may be personal long-term installment loans for bad credit available to help.
The primary difference between these loan types is the length of the tenor. Short-term loans typically are repaid during a period of three-to-five years, whereas long-term loans can have tenors up to 15 years.
Long term personal loans with no credit check are rare, but certain lenders may offer this. In general, it’s best not to accept loans from these lenders as they may charge interest rates that are far higher than the industry standard.
Depending on the type of lender you visit to receive a personal loan, it can potentially take days or be instant if using an online lender.
Most lenders accept online payments, in-person payments, and mailed in checks as a form of repayment on long-term loans.
Getting a long-term loan online requires turning to a bank, credit union, or online lender. Research different options offered by lenders to see what the best interest rate and loan terms may be for your situation.