Comparing long-term loans
Thinking about taking out a long-term loan?
Long-term loans work differently to short-term loans and may not be suitable for every borrower, especially if you have a bad credit history.
Find out what you need to know about long-term borrowing in our guide.
What is a long-term loan?
A long-term loan is a loan that you can pay off over a longer term – five years or more.
Loans for higher amounts, paid back over a longer period (usually 15 years or more), will normally be secured against an asset, such as your home. If you fail to meet the monthly repayments, your home – or any other asset you used as security – could be repossessed.
If you’re thinking about borrowing long term, our loans calculator could give you a rough idea of how much it will cost you for loans up to 10 years.
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:
- 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.
- Paying back over a longer period could mean lower monthly payments, which are more affordable if you’re on a budget, but you typically pay back more overall.
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.
- Interest charges. You might pay more, overall, than you would for borrowing the same amount of money as a short-term personal loan.
- Other fees and charges. Including fees for missing payments.
Are long-term loans cheaper than short-term loans?
Monthly repayments on long-term loans may be more manageable than short-term alternatives. But because you’re repaying the loan over a longer period, you might end up paying more interest overall.
Can I get a long-term loan with bad credit?
Although it’s not impossible to get a long-term loan with bad credit, your choices may be limited. It’s highly unlikely that a lender will approve you for a long-term loan without a credit check.
And be aware that 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, which involve using your home as collateral. This means 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?
You’re unlikely to need a guarantor if you have a good credit history.
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 family friend – who will guarantee to take over the loan repayments if you’re unable to. 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 also 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.
Can I pay back a long term-loan early?
Your lender might allow you to pay back your loan early. You can typically overpay by a set amount every year, but you may have to pay an early repayment charge (ERC).
Check the terms of your loan to see what, if anything, you can pay in addition to your monthly payment to shorten the length of your loan.
Before you take out a loan, make sure you fully understand what your early repayment options are.
Am I eligible for a long-term loan?
The last thing you want to do is apply for a loan, only to get turned down. Being refused a loan could harm your credit rating.
To find out if you’re eligible for a long-term loan before you apply use our eligibility checker when you 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.
Just be aware that our eligibility tool gives you an idea of which loans you could be eligible for. It’s not a guarantee that you’ll be accepted.
Is a long-term loan right for me?
Taking out a long-term loan over five or more years is a big financial commitment. Your repayments may be lower, but they’ll be spread out for longer.
You’ll need to make sure you can cover the cost of the loan – not just in the short-term, but also further down the line.
Consider how your personal circumstances could change over the term of your loan. 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?
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?
Most 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.
While you don’t need to put up collateral for an unsecured loan, these types of loans are usually for short-term borrowing. - 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 you get a loan, 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.
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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.