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.

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.

Alex Hasty
Insurance and finance expert
9
minute read
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Last Updated 8 JULY 2022

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 can give you a rough idea of how much it will cost you for loans up to 10 years.

Are long-term loans cheaper than short-term loans?

Not necessarily. Monthly repayments can 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.

Loans calculator

If you’re thinking about taking out a loan, use our loans calculator to work out how much you can afford to borrow and how much it’ll cost each month.

What can I use a long-term loan 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:

What are the benefits of long-term loans?

Some advantages include:

  • Flexibility. You can find a long-term loan ranging between £1,000 to £50,000. You’ll have anything between a year and 30 years to pay it back, depending on the amount borrowed and the time period that suits you.
  • 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, although you may 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.

You may opt for a long-term loan because you can’t afford to pay the money back over a shorter period of time. Nevertheless, make sure you fully understand the terms and can afford the repayments.

What are the disadvantages of long-term loans?

Some disadvantages might include:

  • Early repayment charges. Long-term lenders may charge you for making early repayments. 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 changes. Be aware of these, including fees for missing payments.

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. Also, be aware that interest rates for bad credit loans are usually higher.

If you have many debts with different lenders, then a long-term debt consolidation loan could be an option. Rather than repaying numerous debtors varying amounts, this could let you consolidate these payments into one, hopefully lower, monthly amount.

However, there are some downsides 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.

If you’re struggling with debt, talk to your lender about what options are available to you. You can also get free expert debt advice. See where to 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 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.

However, guarantor loans usually come with higher interest rates than standard personal loans. It’s 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?

Yes, your lender might allow you to overpay by a set level every year, but you may have to pay early repayment charges. 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 you should 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 also harm your credit rating. 

So, it’s best to see what your chances of being accepted are before you formally apply. To find out if you might be eligible for a long-term loan, use our eligibility checker when you compare loans with us for repayment periods of up to 10 years. All you need to do is 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 only serves to give you an idea of which loans you could be eligible for. It’s not a guarantee that you’ll be accepted.

Find out if you’re eligible for a long-term loan

Is a long-term loan right for me? 

Taking out a long-term loan over five or more years is 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? 

While any type of loan needs a lot of thought before jumping in – it pays to do a bit more research when you’re looking to borrow over a longer period of time.

How do I choose the best long-term loan for me? 

Here’s 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’ll need to use an asset like your home as security against the loan. If your situation changes in a few years and you can’t keep up with the loan repayments, you could 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. 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. However, some UK long-term loans can be on a variable interest rate – this means your 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 earlier, check if you’ll be charged an early repayment fee, and if so, how much? It’s worth doing some sums to see if paying an ERC is worth it to cut short the loan and clear your debt earlier. 

Make sure you check the terms and conditions and the lender’s borrowing rules when comparing different 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, then you can compare long-term loans online with our comparison service. With just a few clicks, you can see what options are 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 just another name for a personal loan where payments are spread evenly over the length of the loan. This is different to a credit card, where what your payments can vary month to month, based on what you spend and if you pay more than the minimum.

If you get a loan, your lender will expect you to set up a direct debit to pay the loan back on a regular schedule.

What is APR?

APR, or annual percentage rate, shows the total cost of borrowing over the course of a year, including the interest rate plus any fees automatically added to the loan. ‘Representative APR’, which is what you’ll see advertised, is the rate that must be offered to at least 51% of successful applicants, but it isn’t necessarily the one you’ll get. That’s called the ‘real APR’ and will depend on several factors, including how much you want to borrow and your credit score.

Find out more about APR.

How can I increase my chances of getting a long-term loan?

One of the best ways to improve your chances of being accepted for a long-term loan is to check your credit score. If you’ve got 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.  

If your score isn’t great, there are a few steps you can take to improve it:

  • Get on the electoral roll – lenders use the electoral register to confirm your identity and address.
  • Be consistent with your name – different ways of spelling your name and abbreviations could harm your credit score. Make sure you use the exact same version of your name on bills, bank accounts, credit cards, insurance policies and other official records.
  • Set up direct debits – this will ensure your bills are paid on time.
  • Pay off existing debts – lenders will be reluctant to lend you more if you still have outstanding credit cards and an overdraft to pay off.

Find out more ways to build your credit score

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