If you’re in a pinch and need cash, where do you turn? Increasingly, American consumers are turning to personal loans.
Outstanding personal loan balances have more than doubled in the past four years, reaching $112 billion in 2017, according to data from TransUnion.
Long-term personal loans can help you get the money you need when you need it — along with affordable payments.
There’s no rule about which terms are considered long-term personal loans. However, in most cases, a long-term personal loan will have a loan repayment term of five years or longer. Here’s a look at how long-term personal loans can affect your finances.
4 ways long-term personal loans can help your finances
Here are some common reasons you might choose a personal loan with a term of five years or more.
1. You want low monthly payments
If keeping your monthly payments as low as possible is important to you, then long-term personal loans can help.
It all comes down to loan amortization — or the calculation lenders use to set monthly payments. Amortizing a loan means calculating a fixed monthly payment that will cover interest and repay the principal (the original amount you borrowed) over the course of your loan term.
The longer your loan term, the more monthly payments you’ll make. A three-year loan has just 36 payments, for instance, while a five-year loan has 60.
With the principal divided up over more payments, that means a lower monthly minimum. Ultimately, choosing a longer term can free up hundreds of dollars each month. Try out our personal loan calculator and see for yourself how longer terms can lower your monthly payments.
2. You need to borrow a large amount
Another reason to choose a long-term personal loan is if you have to borrow a large amount. You might need a large personal loan to cover major costs for:
- Consolidating credit card balances and other debts
- Financing major home repairs or improvements
- Covering emergency costs or expenses, such as medical bills
- Paying for major life events, such as a wedding or a divorce
Signing on for a large loan can be intimidating. But choosing a longer loan term can help keep monthly payments manageable.
These examples from SoFi show how personal loan terms can affect monthly costs (assuming a $30,000 loan):
|Loan term||Lowest APR||Monthly payment|
Choosing a five-year loan instead of a three-year loan will lower your monthly payment by $311. And a seven-year loan will save you $439 per month compared to a three-year loan.
Paying $906 isn’t possible for many borrowers, but $595 or $467 per month might be. By choosing long-term personal loans, you can borrow a large amount and keep your monthly payments manageable.
3. You’re using a personal loan instead of credit cards
Maybe you already have significant credit card debt. Or you’re considering paying for a major expense, such a home repair, with a credit card. In these cases, long-term personal loans are often a better alternative.
Here are a few reasons why personal loans might be a smarter choice than credit cards.
Set payoff date
Your monthly payments are always the same with long-term personal loans, and you know when you’ll get out of debt.
Credit card minimum payments, on the other hand, can stretch out repayment for decades. For instance, it would take you 22 years to pay off a $4,000 credit card balance with a 13.61% APR if you were making minimum payments.
Lower interest charges
No matter what your credit is like, personal loans usually come with lower interest rates than credit cards. That means more of your payments will go toward lowering your principal and paying off your debt instead of interest.
Lastly, credit cards can be tricky because they are a form of revolving credit, which means you can continue borrowing and paying off your balance. Even if you pay off $500 on a credit card, it can be all too easy to turn around and rack up another $500.
A long-term personal loan, on the other hand, provides a one-time payout. By understanding how personal loans work, you can avoid the revolving debt trap of credit cards.
4. You want flexibility to pay less if needed
Of course, there’s no set-in-stone rule that says you have to pay only the monthly minimum on long-term personal loans. In fact, it would be wise to make extra payments to get ahead of interest charges and pay off the debt faster.
For instance, you might think you could manage to pay $900 on a personal loan some months — but not every month. Perhaps you feel more confident about the $600 monthly payment for a five-year term.
You could choose the five-year term and have the flexibility to pay extra when you can. But should a month come along that you need that $300 for something else, you can pay the minimum payment without getting behind on your loan or damaging your credit score.
How long-term personal loans can hurt your finances
Long-term personal loans do have some drawbacks compared to short-term personal loans, however, which loan applicants should consider before making a decision.
Here are the biggest cons of long-term personal loans.
You’ll have a higher interest rate
Lenders usually charge higher interest rates when they face a higher risk.
Long-term personal loans present a higher risk because it takes a lender longer to get its money back, which means there’s more time for something to go wrong. Remember: Higher interest rates can lead to higher costs (more on that below).
You’ll be in debt longer
While you’ll likely have lower monthly payments, you’ll face those costs for years to come. Make sure you understand the commitment you’re taking on with a long-term personal loan and feel confident you can continue to make your payments well into the future.
Your total loan costs will increase
With a long-term personal loan, smaller monthly payments mean your balance stays higher for longer. Combine that with higher interest rates, and choosing a longer term could mean paying thousands more in interest over the life of your loan.
In the above example from SoFi, the total interest on a five-year loan is $5,600 — more than double the $2,607 paid on a three-year loan.
Because long-term personal loans have some significant downsides, it’s important to shop around and find a trustworthy lender.
5 best lenders for long-term personal loans
If you’re going to repay a personal loan for the next five years or more, you want to choose the right lender. The best long-term personal loans will have low interest rates and low origination fees.
In order to find the best long-term personal loan for you, you must request and compare customized rate quotes from a variety of lenders.
To get you started on your loan search, we’ve researched personal loan providers and rounded up our top picks.
These lenders offer long-term personal loans with terms to fit a wide range of borrowers’ needs:
Each of these lenders also offers rate quotes using soft credit checks, so you can get a customized offer without affecting your credit. You also can compare different terms and rates with our calculator to see how they could affect your monthly payment and total interest costs.
Take your time shopping, researching, and comparing, and you can find long-term personal loans that meet your needs.
Interested in a personal loan?Here are the top personal loan lenders of 2018!
|Lender||APR Range||Loan Amount|
|1 Includes AutoPay discount. Important Disclosures for SoFi.
2 Includes AutoPay discount. Important Disclosures for Payoff.
3 Important Disclosures for FreedomPlus.
4 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
5 Important Disclosures for LendingPoint.
6 Important Disclosures for LendingClub.
All loans made by WebBank, Member FDIC. Your actual rate depends upon credit score, loan amount, loan term, and credit usage & history. The APR ranges from 6.16% to 35.89%. For example, you could receive a loan of $6,000 with an interest rate of 7.99% and a 5.00% origination fee of $300 for an APR of 11.51%. In this example, you will receive $5,700 and will make 36 monthly payments of $187.99. The total amount repayable will be $6,767.64. Your APR will be determined based on your credit at time of application. The origination fee ranges from 1% to 6% and the average origination fee is 5.49% as of Q1 2017. There is no down payment and there is never a prepayment penalty. Closing of your loan is contingent upon your agreement of all the required agreements and disclosures on the www.lendingclub.com website. All loans via LendingClub have a minimum repayment term of 36 months or longer.
7 Important Disclosures for Earnest.
8 Important Disclosures for Avant.
* The actual rate and loan amount that a customer qualifies for may vary based on credit determination and other factors. Funds are generally deposited via ACH for delivery next business day if approved by 4:30pm CT Monday-Friday. Avant branded credit products are issued by WebBank, member FDIC.
** Example: A $5,700 loan with an administration fee of 4.75% and an amount financed of $5,429.25, repayable in 36 monthly installments, would have an APR of 29.95% and monthly payments of $230.33
* Important Disclosures for Upgrade Bank.
Upgrade Bank Disclosures
** Accept your loan offer and your funds will be sent to your bank via ACH within one (1) business day of clearing necessary verifications. Availability of the funds is dependent on how quickly your bank processes this transaction. From the time of approval, funds should be available within four (4) business days.
|7.73% – 29.99%||$1,000 - $50,000||Visit Upstart|
|5.81% – 15.37%1||$5,000 - $100,000||Visit SoFi|
|6.87% – 35.97%*||$1,000 - $50,000||Visit Upgrade|
|8.00% – 25.00%2||$5,000 - $35,000||Visit Payoff|
|4.99% – 29.99%3||$10,000 - $35,000||Visit FreedomPlus|
|5.99% – 18.99%4||$5,000 - $50,000||Visit Citizens|
|15.49% – 34.49%5||$2,000 - $25,000||Visit LendingPoint|
|6.16% – 35.89%6||$1,000 - $40,000||Visit LendingClub|
|5.49% – 18.24%7||$5,000 - $75,000||Visit Earnest|
|9.95% – 35.99%8||$2,000 - $35,000||Visit Avant|