What is a long-term loan?
A long-term loan is money you borrow and pay back over a relatively longer number of years. Think of it as getting a big sum of money now that you promise to return bit by bit over time. Most long-term loans last for more than 5 years, but some can run for 30 years.
These loans help you make larger expensive purchases that could be hard to pay for all at once.
How do long-term loans work?
When you get a long-term loan, a bank or lender gives you a large amount of money. You sign an agreement that says you'll pay it back with extra money called interest.
You make regular payments each month until you've paid back all the money plus the interest. These monthly payments are usually the same amount each time, so you can plan for them in your budget.
The lender will check if you can afford the loan by looking at:
- How much money you earn
- Your credit history (how well you've paid back money before)
- What you own (like a house) that could be used as security
What are the advantages and disadvantages of a long-term loan?
Advantages of long-term loans:
- You can borrow larger amounts of money
- Your monthly payments are smaller because they're spread over more years
- You can buy important things now rather than waiting years to save up
- They help you plan your budget with fixed monthly payments
Disadvantages of long-term loans:
- You pay more interest overall because the loan lasts longer
- You'll be in debt for a number of years
- Missing payments can damage your credit score
- Some loans might use your property as security (like your home) which could be at risk if you fail to keep up repayments
Loans for all purposes from £1,000 to £500,000
- Get a decision online
- Know your rate before you apply
- Comparing won't affect your credit score
Intelligent Lending Ltd is a credit broker, working with a panel of lenders. Homeowner loans are secured against your home.
What are interest rates like on long-term loans?
Interest is the extra money you pay for borrowing. On long-term loans, interest rates can be:
- Fixed – stays the same for the whole loan
- Variable – can go up or down over time
Interest rates on long-term loans are often lower than short-term loans. But because you're paying for longer, you'll be charged more interest overall.
In the UK, interest rates depend on:
- How good your credit score is
- What the Bank of England base rate is
- What security you can offer for your loan
- How much you want to borrow
- How long you want the loan for
What are long-term loans used for?
People take out long-term loans for big expenses like:
- Home improvements like an extension or new kitchen
- Consolidating other debts into one payment
- Buying a home with a mortgage (a type of long-term loan)
- Buying a car
- Paying for a wedding
Can I get a long-term personal loan?
Yes, it’s possible to get a long-term personal loan. Personal loans are not secured against your home or other assets. Most banks and lenders offer personal loans that last between 1 and 5 years. Some lenders might offer personal loans for up to 10 years, but these are less common.
Personal loans usually let you borrow between £1,000 and £25,000. The longer your loan term, the lower your monthly payments will be, but you'll spend more on interest overall. Long-term personal loans are good for spreading the cost of big purchases when you don't want to use your home as security.
You'll need a good credit score to get the best rates on a long-term personal loan. Always shop around and compare the total cost of different loans before you decide.
How do I get a long-term loan?
Getting a long-term loan involves the following steps:
- Check your credit score first – better scores mean better loans
- Decide how much money you need and for how long
- Compare different lenders – banks, building societies and online lenders
- Fill in an application form with details about your income and spending
- Provide proof of identity and address
- Wait for the lender to approve your application
- Read all the terms carefully before you sign
- Receive the money in your bank account
Can I get a long-term loan with bad credit?
Yes, you can still get a long-term loan with bad credit, but it will be harder. Lenders worry more about giving money to people with poor credit histories.
If you have bad credit, you might:
- Need to pay higher interest rates
- Need to offer security like your house or car
- Need a guarantor (someone who promises to pay if you can't)
- Be able to borrow less money
- Be turned down by mainstream banks
Some lenders specialise in bad credit loans, but always check the terms they offer before committing.
Should I get a long-term loan?
Before you get a long-term loan, ask yourself:
- Do I really need this money now?
- Can I afford the monthly payments for years to come?
- Have I compared different lenders to find the best deal?
- Do I understand all the terms and conditions?
- What would happen if my income changed?
Long-term loans are serious commitments. Only take one if you're sure you can manage the payments for the whole term of the loan.
Always get free advice if you're not sure. Places like Citizens Advice or the MoneyHelper can help you decide if a long-term loan is right for you.
Disclaimer: We make every effort to ensure content is correct when published. Information on this website doesn't constitute financial advice, and we aren't responsible for the content of any external sites.
Zubin Kavarana
Personal Finance Writer
Zubin is a personal finance writer with an extensive background in the finance sector, working across management and operational roles. He applies his experience in customer communication to his writing, with the aim of simplifying content to help people better understand their finances.
