5-year loans

How does a 5-year loan work? 

A five-year loan gives you the luxury of time to pay back a set amount of money you’ve borrowed.  
 
You can pay off the loan in manageable monthly chunks spread over a period of five years. You’ll be charged interest on the loan so, overall, you’ll end up paying back more than the amount you borrowed. 
 
Reasons you might take out this type of loan are to finance large purchases like buying a car. Or you might need to make urgent home improvements or consolidate debt.  

What type of 5-year loans are there?

A lender will look at your credit report to decide whether to offer you a loan based on your past history of repaying debt. This could also determine the rate of interest you’re offered.

To make sure you get the one that works for you, take a look at the main types of five-year loan you can choose from:

  • 5-year personal loan This type of loan is also known as an unsecured loan, which means you don’t need to offer your home as collateral. Typically, you could borrow up to £25,000.
  • 5-year homeowner loan – this is a type of secured loan that uses your home as security against the amount you want to borrow. Typically, you could borrow between £5,000 and £100,000. You may also get a lower interest rate than with an unsecured loan because it’s less risky for lenders, which could mean cheaper monthly instalments. But, of course, you have more to lose if you can’t make your repayments.
  • 5-year peer-to-peer loan – this lets you borrow money from an individual or group rather than a bank or building society. A specialist peer-to-peer website will match you with people willing to lend to you, then act as intermediaries. The interest rate you’re offered may be lower than a traditional loan, but will still depend on your credit score.

Why choose a 5-year loan?

A longer-term loan can be appealing for many reasons. The main advantages of a five-year loan include:

  • Smaller repayments – a five-year loan could make borrowing more affordable than shorter-term loans because the repayments will be lower and spread over a longer period.
  • Lower interest rate – taking out a five-year loan often means the repayments are offered with a lower Annual Percentage Rate [APR], than short-term loans, particularly if the loan is secured. (APR is the full cost of borrowing over a year.)
  • Flexibility – with a five-year loan, you could borrow anything from £1,000 to £100,000. This gives you more flexibility to make big financial decisions at terms you’re more likely to be able to afford.

Drawbacks of choosing a 5-year loan

A five-year loan won’t be suitable for everyone. Some disadvantages include: 

  • More interest paid – even with a low APR, a five-year loan is likely to be more expensive overall than an equivalent short-term loan of one or two years. The longer the term, the more interest you pay. 
     
  • Long-term commitment – it’s not a position any of us wants to be in, but what if your circumstances changed for the worse. For example, what if you lost your job and you were unable to meet your monthly repayments? This could be very damaging to your credit score, affecting your chances of getting credit in the future. If you’ve taken out a secured five-year loan, you could even lose your home. 

Frequently asked questions

Can I get a 5-year loan with bad credit?

Yes, you might be able to, but you might have to pay a higher rate of interest. If you’re struggling with your existing debt, a five-year loan could give you the breathing space to consolidate your debt. By combining your loans and credit cards into one manageable repayment, you could potentially reduce your monthly outgoings. However, if you have a poor credit score, some lenders will only offer you a secured loan at best. This means putting up your property as collateral. Remember, you could lose your home if you don’t keep up with your repayments.

How long does it take to be approved for a 5-year loan?

If you apply online, you’ll usually receive a quick decision from a lender. However, it can take anywhere from an hour up to two weeks for your application to be processed and, if successful, for the money to be put in your account. It all depends on the lender, the type of loan and whether you need to provide any supporting documents for your application. 

How can I find a 5-year loan?

You can compare five-year loans online here at Compare the Market. Go to our eligibility checker to see the loans you’re most likely to be accepted for. It won’t damage your credit score.

How much does a 5-year loan cost?

To avoid leaving yourself overstretched financially, it’s always better to only borrow what you can comfortably afford to pay back each month.  
 
Here’s an example of a typical five-year loan for different amounts borrowed: 

Initial borrowing

APR

Monthly repayments

Total repaid

£10,000 loan over 5 years

7%

£197.00

£11,819.94

£15,000 loan over 5 years

7%

£295.50

£17,729.92

£20,000 loan over 5 years

7%

£394.00

£23,639.89

£25,000 loan over 5 years

7%

£492.50

£29,549.86

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What do I need to get a quote?

The personal loans we compare range from £1,000 to £25,000. If you want to borrow more than this amount, you may want to compare homeowner loans.

When you compare personal loans, you’ll need to provide us with a few details about yourself and the loan you’re looking for, including:

  • How much you want to borrow
  • Your annual salary and other income
  • How many people depend on you financially

Our loans eligibility checker will help you find the loans you’re most likely to be accepted for. Once you’ve chosen one, you’ll be transferred to the lender’s site to apply.

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To compare homeowner loans, you’ll need to tell us:

  • How much you want to borrow
  • Over what period of time

We’ll then show you a list of providers.

Compare homeowner loans

Anelda Knoesen

Money product expert

What our expert says

“A five-year loan is convenient for many reasons. It could help you pay for a wedding, a new kitchen or simply help you manage your finances better. But before you apply, get your finances in order to make sure you can comfortably afford the monthly repayments.

“It might also be worth accessing your credit file to see if there are any errors you need to correct. This could improve your chances of being approved for the best loan terms.”

Why use Compare the Market?

See loans from a wide range of providers  Find loans you’re most likely to be accepted for with our eligibility checker  93.8% of users would recommend Compare the Market to friends or family** 

** For the period 1st September to 30th November 2020, 12,477 people responded to the recommend question. 11,706 responded with a score of 6 or above, therefore 93.8% are likely to recommend. 

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5-year loan providers

We compare five-year loans from a wide range of providers, without it damaging your credit score.