At a Glance

Any borrower will have a large number of loan types to choose from when considering taking out debt. Choosing between the different types of long-term loans a lender offers can be challenging when you don’t even understand the nuances of what a long-term loan entails. Learn the ins and outs of long-term loans, along with how to make an educated borrowing decision, to stay on top of your debt.

In this article you will learn about:

What is a long-term loan and how does it work?

A long-term loan is a special type of loan that has a repayment period lasting longer than a year. In most cases, long-term loans come with interest rates ranging from 6-36%, depending on credit worthiness, and can provide lump sums of money ranging from $10,000-$100,000. The majority of long-term loans are unsecured, but certain long-term loans do involve some form of collateral.

The structure of long-term loans involves:

  • Tenor: The tenor of a loan is the length of time the repayments last. For long-term loans, it’s not unusual to see a tenor between two to seven years.
  • Interest Rate: Interest rates are variable for long-term loans but will average between 6-36%.
  • Principal: The principal of a loan is the sum of money, not including fees or interest, that is being borrowed and agreed to pay back.
  • Monthly Payments: Each month, a borrower is responsible for making payments on the loan, which include interest, until the loan is repaid.

Consider a long-term loan for lengthy home projects or medical expenses.

Long-term loans can be useful for large expenses that span multiple years.

Types of long-term loans

Understanding what a long-term loan actually is represents a great first step towards more educated borrowing. However, there are a number of different long term loan types a borrower can consider. Most prominently:

1. Personal loans

Personal loans are the standard long-term loan that is most commonly seen. The majority of personal loans provide tens of thousands of dollars to borrowers at a reasonable interest rate. They are unsecured loans, in most cases, and have a tenor of up to ten years in some case.

Compare: Best Personal Loans

2. Peer-to-peer loans

Peer-to-peer loans are a unique type of long-term loan in that they remove the middleman from lending. Whereas a bank, credit union, or online lender typically brokers the deal with a borrower, peer-to-peer lending is directly between two individuals.

Related: How Does Peer-to-Peer Lending Work

3. Mortgage

One of the few types of long-term loans that is secured is a mortgage loan. This form of long-term loan is for hundreds of thousands of dollars, potentially more, with a tenor of multiple decades. The security on this loan is the property itself, meaning that if a person stops payments then the property can be seized.

When does it make sense to get a long-term loan?

When balancing the different types of long-term loans, it’s natural to wonder when getting such a loan even makes sense. Especially with long term personal loans and peer-to-peer lending, determining when an expense warrants debt can be challenging. Some common reasons to take on debt in the form of a long-term loan include:

  • Major wedding expenses.
  • Long-term home remodeling or repair.
  • Major medical expenses.
  • Large purchases such as a house, boat, or a vehicle.
  • When you need a large sum of money, as opposed to a small emergency sum.


As with all forms of debt, long-term loans can have an impact on your credit score. If a borrower stops making payments on their loan, it will negatively impact their credit score and history. Additionally, even missing a payment can have a profoundly negative effect. Always make on time payments on your debt to avoid negative implications to your credit.

The maximum length of time for a person loan varies from lender to lender, but seven to ten years is the most common maximum length of time.

Yes, long-term loans can be a great idea for many borrowers who need to make a major purchase, yet don’t have access to the sum of money needed. The important thing to remember when taking out a long-term loan is to fight for a fair interest rate and to be sure that you can meet all necessary payments on time.