Long Term Loan Definition | Financing 101
- February 11, 2021
- 6 min read
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If you’ve been researching different loans, you’re likely aware that there are a lot to choose from. You may even be at the point where you’re tired of looking at your options. With such a wide variety of loans, it can easily become confusing trying to make sense of them.
If you’re trying to get a loan that requires minimal monthly repayments, a long-term loan might be your best option. But exactly is a long-term loan? How long is long-term? And what makes it a good loan choice?
We’re going to answer your burning questions and much more. We want you to be armed with as much information as possible so that you make the wisest decision for your financial situation.
If you would like our professional assistance with your loan needs, please don’t hesitate to contact us. Our loan specialists will be happy to provide direction and guidance to ensure that you get the best loan term and rates.
You may find the answers you’re looking for in this guide, so let’s proceed with uncovering the truth behind long-term loans.
While there isn’t an official length of time that determines if a loan is long-term, most personal loans that have repayment terms between five and seven years (60 and 84 months) are considered long-term. But personal loans aren’t the only types of loans that can be designated as long-term.
Mortgages and student loans are also typically viewed as long-term loans. However, it’s common for these loan options to have even longer repayment periods (often between 10 and 30 years).
Although personal loans with repayment periods exceeding seven years are often hard to find, there are some lenders that do offer longer-term personal loans if the financing is right, such as for home improvement purposes.
If you’re unsure when to go with a long-term loan, there are some questions you can ask yourself to determine if a long-term loan makes sense. As such, you might want to choose a long-term loan under the following circumstances:
You Need to Borrow a Sizeable Sum of Money
Ask yourself how much money you need to borrow. If you determine that you require a significant amount of capital to meet your goals, a long-term loan might be the better solution. With this type of loan, you’ll be able to cover your expenses and pay back what you borrowed over an extended period of time.
This will serve to give you some breathing room while you take care of your day-to-day obligations. So, what are some scenarios that dictate borrowing a sizable sum of money? Maybe you had a medical emergency that put you in debt, or you have pressing home repairs that need your immediate attention.
If your expenses are so much that your credit cards wouldn’t cover them, a loan might be your only viable option at the moment. Even if you do have enough credit to cover your needs, you might not be in a position where you are able to pay it off in time without incurring costly interest fees.
A long-term loan would allow you to meet your financial obligations without feeling pressured to come up with the money in a short period of time.
At some point, you may have considered getting a payday loan. However, these types of loans are typically limited to a maximum loan amount of $2,000. Depending on your needs, this might not cover your expenses.
But with a long-term personal loan, you can potentially borrow up to $50,000 (sometimes more depending on your credit and the lender). What’s more, you’ll have between five and seven-plus years to pay it back, making this loan option much more manageable.
You Can’t Afford High Monthly Repayments
Ask yourself how much money you can afford to pay back each month. To help you determine this number, we advise using a free online loan payment calculator. If you find that you are only able to make a minimum repayment, a long-term loan is likely to be your best option.
By design, long-term loans require smaller monthly payments, whereas short-term loans require larger monthly payments. Just keep in mind that long-term loans typically have you paying more in the long run in interest fees.
As long as you are OK with paying more over the length of your loan, a long-term loan will allow you to comfortably attend to your day-to-day financial commitments without the pressure of coming up with more money in the here and now.
As we just discussed, long-term loans come with longer repayment periods. As such, you’ll be able to take care of any pressing expenses without having to worry about paying back your loan right away. This means more affordable monthly payments stretched out over a longer period of time.
The biggest problem with this kind of loan is that it keeps you in debt longer than many other loan types. If you’re trying to get your debts in order and stay out of debt, a long-term loan isn’t the best option.
If you can afford to pay the higher monthly repayment fees associated with short-term loans, you can look forward to getting out of debt a lot sooner. If your goal is to consolidate all of your debt, you might be better off applying for a balance transfer credit card.
There is more than one type of long-term loan, with some being hard to qualify for. Long-term loans that don’t require collateral (unsecured loans) have stricter requirements to qualify. As such, lenders will look at your credit score and financial history to determine whether you are approved.
If your credit isn’t in the best condition at present, you may have no other alternative but to seek another loan option entirely. If you aren’t in a position where you need fast funds to meet a goal or pay off an expense, it might be better if you work on repairing your credit score so that you can qualify for more loan options.
The other kind of long-term loan is the secured type. This means that the loan is backed by assets. Your assets. As such, you will be required to put your assets up as collateral. In the event that you don’t meet your loan repayment requirements, the lender can seize your assets to satisfy your loan.
This is a position you don’t want to find yourself in. You need to be certain that you can make your payments on time before agreeing to any loan. But this is especially true with secured loans. Failure to adhere to the loan’s arrangement could see you lose your possessions.
When you’re ready to apply for a long-term loan, you can typically look forward to a quick and easy process. Depending on your lender, you might be able to start with a prequalification. Instead of performing a hard credit check that affects your credit score, the lender will instead perform a soft credit check that does not.
This soft credit check lets the lender know whether you qualify for a long-term loan. If your credit isn’t in the best shape, you might want to seek out a lender that offers prequalification applications.
If the lender determines that you prequalify, you will then be able to see estimates for how much you can borrow. Since they are only estimates, your exact loan amount could be less or more. If you are happy with the estimates offered, you can then formally apply.
You don’t have to accept the true loan amount once it comes back, so don’t worry about agreeing to the estimates. You’re only saying that you’re OK with the ballpark amount. It’s also important to note that prequalifying doesn’t guarantee that you’ll be approved.
When you apply for the actual loan, a hard credit check will then be performed. If you don’t end up qualifying for the actual loan, be sure to ask the lender what prevented you from qualifying. Any information shared with you should be used to better yourself so that you can apply in the future with a better chance of getting approved.
It’s also worth mentioning that there’s always a possibility that there’s an error on your credit report. These things do happen and can be resolved with research and diligence. The sooner you can get errors off of your credit report, the sooner you’ll be able to get the funding you need.
For more helpful tips and guides, be sure to check out our extensive blogs section. And if there’s anything we can help you with in the meantime, feel free to contact us any time. We are always here to help!
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