Compare long-term loans
A long-term loan could help you spread the cost of an expensive purchase over time. But it’s a big commitment, so may not be suitable for every borrower.
Find out what you need to know about long-term borrowing and compare loans with us.
What is a long-term loan?
A long-term loan refers to a loan that’s typically repaid over a period of years rather than months.
It’s a way to borrow a large sum of money to spread the cost of a big purchase, like a new kitchen. It usually has a lower interest rate than a short-term loan, which is generally meant to be paid back within 12 months.
A long-term loan can either be an unsecured personal loan or a secured loan backed by collateral. The loan deal you’re offered will depend on your financial situation and credit score.
How do long-term personal loans work?
The process of securing a loan and paying it back is usually straightforward. Here’s how long-term loans work in four easy steps:
1. Work out how much you need to borrow
Lenders will typically offer up to £25,000 with an unsecured personal loan, although some may set lower limits than this. If you want to borrow a bigger amount, you may have to secure the loan against an asset, such as your home.
Our loans calculator could give you a rough idea of how much it will cost you for loans up to 10 years.
2. Choose the best long-term loan for you
It’s worth comparing lenders to see which offer the loan terms and rates that suit you best. When you apply for a loan, you’ll need to provide information about your income, outgoings and employment status.
Your chosen lender will review your finances and credit history to determine whether you’re a reliable borrower they’re willing to lend to.
3. Receive the money
If your application is successful, the agreed loan amount will be paid as a lump sum directly into your nominated bank account.
4. Pay back the loan
You’re responsible for paying back the amount you borrowed in instalments, with added interest. The longer the term, the more interest you’ll pay overall.
You’ll usually make fixed monthly payments over a set number of years until the loan is paid off.
What can long-term personal loans be used for?
Most people tend to take out long-term personal loans to finance big projects or expenses that may be harder to pay off over a shorter term.
These could include:
- Home improvements, like an extension or renovation
- Financing a wedding
- Buying a car
- Debt consolidation.
What are the benefits of long-term loans?
Some advantages include:
- Flexibility. You can find a long-term loan from £1,000 to £50,000. You’ll have between a year and 30 years to pay it back, depending on the amount borrowed and whether the loan is secured against an asset or not.
- The possibility of lower interest rates than short-term loans. Check the representative APR to compare rates from different providers. But remember, the rate shown isn’t necessarily the one you’ll get, as that will depend on your credit history and personal circumstances.
- Lower monthly repayments. Paying back over a longer period could make your monthly payments more affordable if you’re on a budget.
See the impact of paying back over a longer period in this example:
| Loan | Loan period | APR | Monthly payment | Total payment | Cost of loan |
|---|---|---|---|---|---|
| £5,000 | 3 years | 8.6% | £157.33 | £5,663.70 | £663.70 |
| £5,000 | 7 years | 8.6% | £78.63 | £6,604.65 | £1,604.65 |
Although the monthly payments are more affordable, the overall cost of the loan increases when it’s paid back over a longer time.
What are the disadvantages of long-term loans?
Some disadvantages of long-term loans might include:
- Early repayment charges. Long-term lenders may charge you for repaying the loan early. This isn’t always the case, but it makes sense to check before you take out a loan.
- Total interest charges. You might pay more, overall, than you would for borrowing the same amount of money as a short-term personal loan.
- Other penalties and charges. Including fees and negative marks on your credit file if you miss payments.
Can you get longer-term loans for bad credit?
Although it’s not impossible to get a long-term loan with bad credit, your choices may be limited. Interest rates for bad credit loans are usually higher.
If you have several debts with different lenders, then a long-term debt consolidation loan could be an option. This lets you consolidate multiple payments into one, hopefully lower, monthly amount.
However, there are some downsides to debt consolidation loans you’ll need to consider:
- Some providers will only offer long-term debt consolidation under secured arrangements. This involves using your home as collateral. Be aware that you could lose your home if you fail to make your repayments.
- Taking out a long-term loan could extend the term of your original loan. In this case, you could pay more interest.
If you have a bad credit rating or no credit history at all, you might also need to provide a guarantor to get approval for a long-term loan. A guarantor agrees to make your repayments if you’re unable to do so.
If you’re struggling with debt, talk to your lender about what options are available to you. You can also get free debt advice on the MoneyHelper website.
Do I need a guarantor for a long-term loan?
If you have a good credit history, you won’t necessarily need a guarantor to get a long-term loan.
However, if you have a poor credit rating or no credit history at all, having a guarantor with a good credit history could improve your chances of getting a long-term loan.
A guarantor is someone – usually a family member or close friend – who’ll guarantee to take over the loan repayments if you’re unable to make them. It gives lenders an added assurance that the loan can be paid back.
Be aware that guarantor loans usually come with higher interest rates than standard personal loans.
A guarantor loan is a big financial commitment for both you and your guarantor. If neither of you can cover the repayments, you could both lose your assets, face further financial penalties and even be taken to court.
Am I eligible for a long-term loan?
You can find out if you’re eligible for a long-term loan before you apply by using our eligibility checker. Being refused a loan could harm your credit rating, so the last thing you want to do is apply for a loan only to get turned down.
You can compare loans with us for repayment periods of up to 10 years.
Just answer a few simple questions and we’ll run a soft search on your credit file to find out which loans you may be eligible for. A soft credit check isn’t marked on your file, so it won’t affect your credit score in any way.
Our eligibility tool is designed to give you an idea of which loans you could be eligible for. It’s not a guarantee that you’ll be accepted.
How do I choose the best long-term loan for me?
Here are a few factors to consider before deciding on the right long-term loan for your needs:
Secured or unsecured?
Some long-term loans are secured. This means you need to use an asset like your home as security against the loan. If your situation changes and you can’t keep up with the loan repayments, you risk losing your home.
You don’t need to put up collateral for an unsecured loan. But it might be difficult to find a long-term unsecured loan if you need to borrow for more than five years.
Fixed or variable rate?
Most personal loans have a fixed rate of interest, which means your repayments will stay the same each month, making it easier to budget.
But some UK long-term loans can have a variable interest rate. This means the repayments could go up or down in line with the Bank of England base rate, which could make it more difficult to budget each month.
Early repayment charge?
If there’s a chance you could pay back the loan early, check if you’ll be charged an early repayment fee. If so, how much will it be? Then work out whether it’s worth paying a fee to cut short the loan and clear your debt earlier.
Make sure you check the terms and conditions when comparing long-term loans. It’s important that you understand what charges may apply and also what will happen if you can’t make your repayments each month.
Where can I compare long-term loans?
Use our eligibility checker to find out which loans you’re likely to be accepted for without impacting your credit score. Then you can compare long-term loans with our comparison service.
With just a few clicks, you can see what options could be available for the size of loan you want. You’ll be able to compare loans based on the overall cost and monthly repayments.
You’ll also be able to see if the lender allows loan payment holidays, debt consolidation and if early repayment charges apply.
Compare the Market Limited acts as a credit broker, not a lender. To apply you must be a UK resident and aged 18 or over. Credit is subject to status and eligibility.
Frequently asked questions
What is an instalment loan?
An instalment loan is another name for a personal loan where repayments are spread evenly over the length of the loan. This is different to a credit card, where your payments can vary month to month, based on what you spend and if you pay back more than the minimum.
If your loan application is successful, your lender will expect you to set up a direct debit to pay back the loan to a regular schedule.
How can I increase my chances of getting a long-term loan?
One of the best ways to increase your chances of being accepted for a long-term loan is to improve your credit score.
If you have a good credit score, your application is more likely to be accepted and you might also get a better rate of interest. Lenders will also check your credit history to see if you’re a reliable borrower and are good at paying back your debts.
Is a long-term loan right for me?
A long-term loan could be right for you if you need to make a big purchase more affordable. But it’s also important to consider how your personal circumstances could change over the term of your loan.
Taking out a long-term loan over five or more years is a big financial commitment. If you change jobs, lose your job or have a baby, how will those changes affect your finances and your ability to repay the loan?
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The Editorial Team - Compare the Market
Experts in personal finance, insurance and utilities
Compare the Market’s Editorial Team is made up of industry experts with decades of experience in personal finance, insurance and utilities. Each of our authors has an area of expertise, where they can share their extensive experience to help you get a better deal, by finding the right product and saving money.