Personal loans can come in handy when you need funding in a pinch for a big expense, such as a wedding, funeral, home repairs, a car repair, debt consolidation and more. One of the most important factors to consider when choosing a personal loan is the repayment period. How long you have to pay the loan back influences your monthly payments, interest rates and more. So if you're having trouble deciding how long of a term you should go with, here are some helpful pointers to keep in mind.
Loan repayment terms typically range from two years to five years. Any loan that requires repayment outside that range could be considered either a short or long-term loan, though no strict definition exists.
Monthly payments — why longer means lower
When you choose a personal loan with a short repayment term, you'll pay off the loan sooner and won't have it hanging over your head for longer than you'd like. But this comes at the cost of higher monthly payments compared to a loan with a longer repayment period. That's because personal loans must be repaid in fixed, equal monthly payments.
Aggressively paying down your debt can impact how much room you have left in your budget each month for other expenses. This is where selecting a loan with a longer term can ease some of that financial strain. Selecting a longer loan term usually means lower monthly payments, since you have more time to pay back the balance.
Select rounded up some of the best long-term personal loan lenders. The longest repayment term on the list was up to 144 months (12 years dependent on loan purpose) offered to qualifying borrowers through LightStream. LightStream borrowers can also apply for as little as $5,000 and as much as $100,000. But if you don't need to borrow as much as $5,000 and need a lender that funds smaller loan amounts, Upgrade is a solid choice. This lender offers repayment terms as long as 84 months (seven years).
LightStream Personal Loans
Annual Percentage Rate (APR)
7.49% - 25.99%* APR with AutoPay
Loan purpose
Debt consolidation, home improvement, auto financing, medical expenses, and others
Loan amounts
$5,000 to $100,000
Terms
24 to 144 months* dependent on loan purpose
Credit needed
Good
Origination fee
None
Early payoff penalty
None
Late fee
None
Terms apply. *AutoPay discount is only available prior to loan funding. Rates without AutoPay are 0.50% points higher. Excellent credit required for lowest rate. Rates vary by loan purpose.
Upgrade Personal Loans
Annual Percentage Rate (APR)
8.49% - 35.99%
Loan purpose
Debt consolidation/refinancing, home improvement, major purchase
Loan amounts
$1,000 to $50,000
Terms
24 to 84* months
Credit needed
Fair, good to excellent
Origination fee
1.85% to 9.99%, deducted from loan proceeds
Early payoff penalty
None
Late fee
Up to $10 (with 15-day grace period)
Terms apply.
Interest charges — ripping off the Band-Aid
The downside to choosing a personal loan with a longer repayment term is paying more in interest charges over the life of the loan. Since lenders charge interest payments monthly, a longer loan term inherently means more interest payments.
Taking on a personal loan with a shorter term will help you save on interest charges (at the trade-off of having larger monthly payments, of course). But if a longer term with more interest makes more sense for your financial situation, there are a few things you can do to make sure you're paying as little interest as possible.
First off, before you apply for a personal loan make sure you improve your credit score if it's less than ideal. Lenders evaluate your creditworthiness when approving you for the loan and determining what interest rate you'll be charged. The higher your credit score, the lower your interest rate will be, which means you'll spend less on interest payments over the life of the loan.
It's also a good idea to double check if your lender offers an APR discount for making your monthly payments through autopay. As the name implies, autopay automatically pays your bill each month from an account of your choosing, ensuring you'll never forget a payment. SoFi and LightStream are just a few lenders that offer a 0.25% APR discount for using the autopay.
SoFi Personal Loans
Annual Percentage Rate (APR)
8.99% - 29.49% when you sign up for autopay
Loan purpose
Debt consolidation/refinancing, home improvement, relocation assistance or medical expenses
Loan amounts
$5,000 to $100,000
Terms
24 to 84 months
Credit needed
Good to excellent
Origination fee
No fees required
Early payoff penalty
None
Late fee
None
Terms apply.
Other considerations
If choosing a longer term loan makes financial sense for your monthly budget despite the accrued interest over time, avoid lenders that charge prepayment penalties. Choosing a lender that doesn't charge these fees means you can make extra payments to your balance without being punished for it, which saves you interest over time. Select covered a few lenders that don't have an early payoff penalty.
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Bottom line
Before taking on any new form of debt, including personal loans, you'll want to evaluate how the monthly payments fit into your budget. With a short-term personal loan, monthly payments tend to be higher; with a long-term personal loan monthly payments are likely to be smaller, which allows for more budget flexibility. On the flip-side, this can mean you're paying more in interest over the life of the loan.
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