Short-term or long-term personal loans: how to choose the right one

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Need to borrow money, but aren’t sure which personal loan payment term to choose? Learn more about short-term and long-term personal loan terms. (Shutterstock)

Personal loans have payment terms that typically range from 12 to 60 months, or sometimes longer. But short-term personal loans are also available, with some terms from a few weeks to 12 months.

A longer loan term leads to lower monthly payments but higher interest costs. If you’re looking to save on interest, you may prefer a short-term loan, even if the payment schedule is a bit aggressive.

Here it is Learn more about short-term and long-term personal loan terms as you decide which might be right for your situation.

Believable makes it easy compare personal loan rates and different loan terms from various lenders, all in one place.

Advantages of short-term loans

Personal loans with shorter terms have several advantages to consider, including:

  • Lower interest costs — Because you pay it off quickly, interest costs are lower on a short-term loan.
  • Eliminate debt faster: If your goal is to pay off a loan as quickly as possible, a shorter term will help achieve that.
  • Smaller loan amounts available: If you don’t need a large sum of money, a short-term personal loan can help you avoid borrowing more than you need.

Cons of short-term loans

Short-term loans can also have some drawbacks that you’ll want to be aware of:

  • Higher interest rates — Short-term loans tend to have higher interest rates than long-term loans. It may make sense to do the math to make sure a short-term loan is actually cheaper than a long-term loan with a lowest interest rate.
  • Expensive rates – Short-term loans can have high fees that can add to the total costs of the loan, such as origination fees to process the loan and late fees.
  • It only offers a short-term solution: A short-term loan cannot provide long-term financial support and is only designed to cover immediate cash flow problems.

Advantages of long-term loans

Long-term loans come with several benefits, including:

  • Larger loan amounts: With long-term personal loans (especially with repayment terms of five years or more), it’s generally easier to secure larger loan amounts than you can get with short-term personal loans.
  • Credit building potential — If you make all your personal loan payments on time, you can improve your credit score. A long-term personal loan gives you a longer period of time to make consistent payments.
  • Smaller monthly payments: Because the payment is spread out over more months or years with a long-term personal loan, your monthly payment amount will likely be lower and more manageable than a short-term loan.

If you’re looking for a loan with flexible repayment terms, Credible makes it easy. view your prequalified personal loan rateswithout affecting your credit score.

Cons of long-term loans

Before applying for a longer-term loan, be aware of these potential drawbacks:

  • Debt-to-income ratio increases — How much more debt you have, the higher your debt-to-income ratio may be, which makes it more difficult to qualify for other loan products. If you know you’ll need a major credit product while you pay off a long-term personal loan, like a car loan or mortgage, you may want to postpone getting a personal loan, or you can opt for one with a shorter term on your loan. place.
  • May be more expensive While short-term loans tend to have higher interest rates than long-term loans, you often end up paying more in interest over the life of the loan, since you have to pay interest for many more months on a long-term loan. . Again, it’s important to look at the numbers here to see which option can save you the most money.
  • Increased financial stress: If you’re struggling to make debt payments, having a long-term personal loan can add a lot of financial stress to your plate for years to come. You may not want debt hanging over your head for so long.

What loan repayment term is right for you?

Not sure if a short-term or long-term loan is right for you? It can be difficult to make this call, but looking at the numbers can help make the decision easier. The first thing you’ll want to consider is how the term of the personal loan will affect your monthly payment amount and how much interest you’ll pay over the life of the loan.

For example, let’s say you apply for a $5,000 loan with an interest rate of 11%. Here’s how the term of your loan can affect the amount of interest you’ll pay:

  • Two-year loan term: Your monthly payment would be $233 and you would pay $593 in interest.
  • Five-year loan term: Her monthly payment would be only $109, but she would pay a total of $1,523 in interest, almost $1,000 more than she would pay with the short-term loan.

These potential savings are great, but only if you can afford the short-term monthly loan payments. You can use Credible’s personal loan calculator to get a better idea of ​​what personal loan term might work for you.

can help look for both short-term and long-term personal loans with different lenders before making a decision. Personal loan lenders offer different loan amounts, interest rates, fees, and payment terms, so shopping around can help ensure you get the best loan and payment terms for your financial needs.

If you’re ready to apply for a personal loan, Credible allows you to quickly and easily compare personal loan rates to find one that suits your needs.

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