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Comparing long term loans: a simple guide

Thinking of taking out a long-term loan? Find out what you need to know about this type of borrowing in our guide. 

Thinking of taking out a long-term loan? Find out what you need to know about this type of borrowing in our guide. 

Anelda Knoesen
From the Money team
minute read
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Posted 21 NOVEMBER 2019

What is a long-term loan?

A long-term loan is usually taken to mean a debt that’s paid off over a period of more than one year. Long-term loans involve borrowing money over a specified period with a pre-planned payment schedule.

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 paying over a longer period you may end up paying more interest overall. 

What are the benefits of long-term loans?

Some advantages include:

  • Flexibility. You can find a long-term loan ranging between £1,000 to £100,000, over a period of time to pay back that suits you.
  • The possibility of lower interest rates than short-term loans. Payday lenders, for example, can have interest rates exceeding 1,000%. Just check the APR to see what interest rates have been offered to at least 51% of successful applicants to see how long-term loans compare.
  • A longer-term loan, because you are paying back over an extended period, can mean lower monthly payments and can therefore be more affordable, 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

Here you can see that although the monthly payments are much more affordable, the overall cost of the loan increases when it is paid back over a longer time. So you have to choose the size and length of loan that is affordable for you.

If you do opt for a long-term loan, make sure you fully understand the terms and can afford the repayments.

What are the disadvantages of long-term loans?

Some disadvantages may 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.  
  • Other fees and changes. Be aware of these, including fees for missing payments.

Is it possible to get a long-term loan with bad credit?

Yes. If you’re struggling with your existing debt then a long-term loan may help, as you can consolidate debt and potentially reduce monthly outgoings.

Rather than repaying numerous debtors varying amounts, you can consolidate all of this 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.

What is an installment loan?

An installment loan is just another name for a normal loan. Some people call it this because they focus on the set monthly payments. This is different from a credit card where what you pay 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. 

How can I find a long-term loan?

You can compare long-term loans online with our comparison service. With just a few clicks, you could see what options are available for the size of loan you want. Compare now and get the right deal for you.

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