What Are Long-Term Personal Loans?

Jamie CattanachUpdated November 17, 2021

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Most personal loans are repaid over a term of two to five years, but for those who need more time to pay back what they owe, long-term personal loans are available. However, these loans with longer terms come with their own drawbacks and benefits.A long-term personal loan might keep your monthly payment low, but you’re likely to pay more in interest over the lifetime of the loan — especially since long-term personal loans tend to have higher interest rates than their shorter-term counterparts.Still, a long-term personal loan might be the right option for your circumstances and needs. Here’s what you need to know about them.

What Is Considered a Long-Term Personal Loan?

Any personal loan with a term of more than five years is considered a long-term personal loan, and their terms can sometimes stretch as long as 10 or 12 years.Just like how a personal loan works usually, long-term personal loans allow you to borrow a set amount of money that you then repay in regular monthly installments that include both the principal and interest. A long-term personal loan may allow you to borrow a higher amount at lower monthly installments. However, you’ll almost certainly pay more in interest over the lifetime of the loan. Additionally, being in debt for such a long period of time can make it difficult to achieve other financial goals.

Pros and Cons of Long-Term Personal Loans

Long-term personal loans do have some benefits, but they have important drawbacks to be aware of as well. Taking out any kind of debt is always a major decision. Borrowing money comes at a cost, and it’s important to think carefully before taking on that financial burden.That said, there are some circumstances where there are benefits to getting a personal loan — and a long-term personal loan, specifically.For example, if you’re a freelancer or seasonal worker whose income fluctuates, a long-term personal loan could help you take care of large expenses at a low monthly cost while allowing you to pay more toward that debt when you can afford to. Just make sure to check whether your lender imposes any early repayment penalties.If you’re an entrepreneur, you may be interested in looking into long-term business loans, which could help your business blossom, thus earning you back the interest you spend on the loan and then some.Additionally, personal loans can be used to consolidate existing debt — specifically, debt that may have an even higher interest rate, like credit card debt. You could also use a personal loan to perform home renovations or repairs that could increase the value of your home and add to your wealth in the form of equity.In general, a personal loan of any term length may be a good idea when the loan stands to pay for itself over time, whether in the form of money saved or earned.

Long-Term Personal Loan Lenders

Another potential drawback with long-term personal loans is that fewer lenders offer them. In most cases, personal loan terms are capped out at five years.That said, there are some lenders out there that offer personal loans over a lengthier timeline. You just have to shop around. If your credit isn’t up to snuff, it can be difficult to qualify for a long-term personal loan — or any personal loan, for that matter. Many long-term personal loans require good to excellent credit (a score over 700) to qualify.You may be able to find lenders who will work with you if your credit history has a few dings in it, but you’ll likely face even higher interest rates. If you can, working to improve your credit before taking out a personal loan might be your best bet toward ensuring you find a loan that you can afford in the long term, which will keep you from falling behind on payments and further hurting your credit. Some ways you can improve your credit include:

Staying on top of making on-time payments
Working to pay off any existing balances
Lowering your credit utilization ratio
Reviewing your credit reports and correcting any errors

Long-Term Personal Loan Application Process

You apply for a long-term personal loan pretty much the way you apply for personal loans in general — and these days, the entire process is done mostly online. You’ll be asked to supply basic demographic and financial information, such as:

Your name
Birth date
Social Security number
Your annual income
Current employment status
Employment history

When qualifying for a loan, lenders are assessing how much of a risk they think they’re taking by extending the money to a borrower, which is why the application process is so thorough. The lender will take into account your credit history and existing debt, which will then be used to determine your interest rate if you qualify.Once you’re approved, the lender will disburse the money to you, which you can then use toward your expenses. You’ll then begin making monthly payments in order to repay the loan, plus whatever interest is charged.

Alternatives to Long-Term Personal Loans

A long-term personal loan might be the right tool for your financial needs, but given their cost and the length of time you might be in debt if you take one out, it’s worth considering alternatives. Your other options may be to:

See if there’s a way to avoid taking on debt: If there’s a way to avoid going into debt at all, such as by using money in an emergency fund, that might be the least costly way to take care of your expenses. That being said, you don’t want to completely collapse your savings, even for projects like debt repayment.
Consider a credit card: Credit cards might be an alternative to long-term personal loans, but they tend to have fairly high interest rates themselves, and it can be easy to spiral into debt since you can keep using them until they’re maxed out. Personal loans, on the other hand, are for a set, specific amount, which makes them a little bit less risky on that front.
Look into 401(k) loan, paycheck advance or salary loan: You might also consider taking a loan out of your retirement account, such as a 401(k) plan, if that option is available through your provider. Certain employers may also offer paycheck advances or salary loans, but these, too, might come with fees, so make sure to read the fine print before signing any paperwork.

The Takeaway

If you do decide a long-term personal loan is right for your financial needs, it’s worth it to shop around and find the one with the most competitive rates. Even a few percentage points of interest can add up over the course of a lengthy loan term.Lantern makes it easy to see personal loan rates compared across different providers, and checking your rates doesn’t affect your credit score. You can get personalized offers in just minutes, all from the comfort of home.

Photo credit: iStock/urbazonThe tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.SOLC1021252

About the Author

Jamie Cattanach

Jamie Cattanach is a full-time freelance writer whose work has been featured at CNBC, Yahoo Finance, The Motley Fool, the Huffington Post and other outlets. At SoFi, she writes about investing, retirement, student loans and how to get your money right -- no matter what that means for you.

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