Long-term personal loans: what to know

A long-term personal loan can help you manage unexpected expenses, such as ongoing medical bills or helping to fund a group of home renovations. These loans generally have longer repayment terms than standard personal loans and might be useful for your financial goals. 

Let’s examine long-term personal loans in more detail. We’ll compare their advantages and disadvantages, then identify the details that can help you determine whether or not a long-term personal loan is the right option for you. 

What are long-term personal loans?

Personal loans are flexible and can be used for various reasons. Because standard personal loans are typically used for limited or short-term expenses, they usually have short to moderate repayment terms between two to seven years. 

Long-term personal loans function like personal loans, though they have longer repayment terms that may range from five to more than 10 years. Because the repayment terms are longer, you may pay a smaller monthly payment compared to the same loan amount with a shorter repayment term. But you’ll likely pay more money in interest.

Who is eligible for a long-term personal loan?

Although each lender may have specific eligibility requirements to take out loans, many will generally consider the following:

• Credit score: Typically, lenders will have a minimum credit score requirement. They usually want to see a credit score rating of “good” (670) or above, though some lenders do offer long-term personal loans specifically for borrowers with fair, poor, or no credit history.
• Income level: Many lenders will want to verify that you have a steady household income so they can confirm that you’ll have the money to repay your loan. Some lenders may also have a minimum household income requirement.
• Debt-to-income ratio: Lenders may also evaluate your debt-to-income ratio, which is the ratio that compares your outstanding monthly debts to your monthly income. Lenders like to see a low ratio, which means that you’re not taking on too much debt compared to your income level.
• Prior payment history: Income approval is important, but lenders want to also make sure that you’re managing your debts responsibly. A history of repaying your debts on time reassures the lender that you’ll likely repay their loan on time as well.
• Potential collateral: Although unsecured long-term personal loans do not require collateral, you’ll need to provide adequate collateral if you’re applying for a secured long-term personal loan. Collateral safeguards the lender in the event that you do not repay your loan.

Where can you get a long-term personal loan?

Long-term personal loans are available from a variety of lenders. These lenders can be at physical locations, like banks and credit unions, orthrough online lending services. 

Banks

Banks offer a traditional way to get a long-term personal loan: You can meet with a representative in person, discuss your options, and get more potential to qualify through your relationship with the bank. One drawback is that banks set their own requirements for lending and might require good credit standing to qualify. 

Credit unions

Credit unions are similar to banks in the regard that you can visit a branch in person to apply for a loan. While you might not need to be a member of a credit union to apply for a loan through them, you’ll likely need to become a member to accept your loan. 

Online lenders

One drawback to using an online lender is that they don’t have a physical branch you can visit. Additionally, their history in the loan marketplace might be limited. They also might only approve a loan based on creditworthiness; your status as a previous customer might not influence your acceptance potential. 

Online lenders, however, tend to streamline the application process. You can apply and get accepted for a loan from home. Some lenders also specialize in lending to borrowers with low or no credit history. 

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Another benefit of online lenders is that it’s often easier to compare multiple lenders at the same time. Resources, such as websites that assess personal loan lenders, can help you quickly identify which lender fits your financial needs.

Related: Learn more about getting a personal loan on Credible.com

Advantages of long-term personal loans

There are many ways that you can benefit from taking out a long-term personal loan, including advantages like:

• Lower monthly payments: Because your loan term is longer, you’ll make lower monthly payments than those you’d make for a short-term loan.
• Larger loan limits: Some lenders may offer larger loan limits for long-term personal loans.
• Higher likelihood of qualifying with a good credit score: Most lenders tend to favor borrowers with higher credit scores compared to those with fair or poor credit scores.
• Ability to build your credit score: Long-term personal loans tend to have repayment terms exceeding five years. Repaying every monthly payment on time can potentially help build your credit history and increase your credit score.

Disadvantages of long term personal loans

Taking out a long-term personal loan isn’t the right option for everyone. Consider these drawbacks before making your decision.

• Paying more in interest over time: Because a long-term personal loan has an extended repayment term, you’ll pay interest for longer. In many cases, this will cause you to pay more interest overall compared to a short-term personal loan.
• Potentially higher interest rates: A long-term personal loan, especially one that’s unsecured, may come with a higher interest rate than another personal loan, line of credit, or credit card.
• An extended income-to-debt ratio: Since you’ll be repaying your balance for an extended period, you’ll have an outstanding debt on your credit report. This may make it harder to take out another loan or credit card if you need one.

What to look for when comparing long-term personal loans

Because each lender has their own processes for qualifying, approving, and distributing loans, you’ll want to compare the following to find the right lender for your financial needs: 

• Loan amounts: Depending on what you’re looking for, you may need an amount that exceeds what a lender can offer.
• Credit requirements: From credit score minimums to debt-to-credit ratios, some lenders will base a borrower’s loan eligibility on aspects of their credit report.
• Discounts: Although these discounts may be low, some lenders may offer incentives like a small discount for enrolling in autopay. 
• Interest rates: Comparing interest rates is important, as this rate will likely be the largest contributing factor to how much additional money you spend while repaying the loan.
• Fees: Interest isn’t the only added expense for long-term personal loans. While some lenders offer limited fees, others may charge origination (fees for creating and processing the application), prepayment fees, late fees, and other charges. These additional fees may significantly increase your overall payment during the lifetime of the loan.

Is a long-term personal loan right for you? 

A long-term personal loan might be the right option for you if you’re encountering one or all the following:

• You’re making large-scale home repairs or remodels.
  
• You cannot afford higher monthly payments with a short-term personal loan.
  
• You can afford the interest that comes with long-term payments and want to build your credit score over time.

Another alternative might be a better option than a long-term personal loan in these situations: 

• You only need a small loan amount that you can affordably repay within a short time period.
  
• You’re unsure if you’ll be able to make your minimum monthly payments on time for an extended period.
  
• You would rather draw from a credit line, such as a personal line of credit, instead of taking out a lump sum.

Can you get a long-term personal loan with bad credit?

Yes, even borrowers with bad or limited credit histories can secure a long-term personal loan. But it’s important to remember that borrowers with good-to-excellent credit histories will usually get the best rates, terms, and acceptance rates.

There are multiple long-term personal loan options for borrowers with bad credit. Some lenders have no or low minimum credit scores to accommodate these borrowers. Others will allow a borrower to add a cosigner with a higher credit score to the loan. While many personal loans are unsecured, opting for a secured loan might improve the likelihood that a borrower with bad credit gets approved.

Related: Learn more about getting a personal loan on Credible.com