How long can you take out a personal loan for?

You can take out a personal loan for anywhere between a few weeks to around five years, or longer with some companies. All lenders have their own loan terms and requirements. You may prefer to take out a long-term or short-term personal loan, depending on how much you want to borrow and how long you want the loan term to be.

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How long should my personal loan term be? 

How long your personal loan term should be, depends on your individual circumstances. This varies from person to person, so there’s no ‘perfect’ loan term to suit everyone.

What qualifies as a short-term personal loan? 

A short-term personal loan is designed to provide you with a small sum of money (up to around £1,000) that you pay back quickly – usually in under a year. Some lenders require you to pay them back within a couple of weeks.

This type of loan can be helpful in an emergency, or for something that requires immediate payment, such as buying a new oven or a car repair. But bear in mind that the cost of borrowing can be high.

What is considered to be a long-term loan? 

You can normally borrow larger amounts of cash with a long-term personal loan, compared to a short-term loan (if you’re eligible). You can spread the payments over one year to 30 years, depending on the lender. This can help to reduce your monthly repayments and make budgeting easier.

Long-term loans tend to come with lower interest rates than short-term loans. However, the longer your loan term is, the more interest you’ll pay overall. And you’ll need a good credit score to get approved for the best rates.

Read on for the pros and cons of short-term and long-term loans.

What other factors should you consider before choosing a personal loan? 

In order to find the right loan for you, you should also consider these factors:

1. How much you need to borrow

Make sure you only borrow what you need, allowing for some wiggle room if your finances change, so you don’t end up in financial difficulty.

You need to make sure the loan is affordable. If you miss payments, you risk incurring late fines. It can also affect your credit score and ability to get finance in the future.

2. Your eligibility for a loan

Generally speaking, if you’ve got bad credit, it might be easier for you to get approved for a short-term loan than a long-term loan. However, each lender uses their own eligibility criteria, so you might get accepted by one and declined by another.

Remember, each time you make a formal application, it shows up on your credit report and if you apply for multiple loans in a short space of time it can have a negative impact on your credit score – even if you are accepted.

So, before making a loan application, use an eligibility checker to see whether you’re likely to get accepted. Unlike a formal credit application, an eligibility checker won’t leave a footprint on your credit report.

Various factors that contribute to your eligibility, include your: 

  • credit score (which indicates your creditworthiness, based on your past financial behaviour)
  • debt-to-income ratio (the percentage of your income that goes on debts each month)
  • affordability (based on how much spare cash you have left at the end of the month)
  • credit history (which details your payment record and includes and negative markers, like defaults and CCJs)

If you’re finding it hard to get accepted for a good deal, it might be worth improving your eligibility before applying.

3. How soon you need the money

One big factor is how soon you need the loan. Short-term personal loans tend to get approved more quickly, which can be an essential factor if you’re looking to pay for a new boiler in the middle of winter! Just make sure you don’t rush your decision. Take enough time to consider which loan is best for you.

4. Annual Percentage Rate (APR) 

The Annual Percentage Rate (APR) is how much the loan will cost you in interest and charges each year. It’s usually expressed as a percentage. You can use the APR to easily compare the total cost of borrowing on different loans, to find the best deal.

In terms of interest rates, larger loans tend to come with lower interest rates than smaller loans (but again, you should only borrow what you need).

Also, APR doesn’t include extra fees that could potentially be incurred over the course of the loan (such as late fines or early repayment charges).

5. Alternative forms of credit

Consider if a different form of credit would be more suitable. For instance, a credit card may be a better option if you want more flexibility with the option to borrow a small amount in the short term. Especially if you can get a 0% introductory offer, where you don’t have to pay any interest for a set period. But bear in mind that once an 0% deal ends, the interest rate will go up. So it’s best to clear the balance as soon as possible.

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Intelligent Lending Ltd is a credit broker working with a panel of lenders.