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How to Decide If Long-Term Personal Loans Are Right for You

If you’re in a pinch and need cash, where do you turn? Increasingly, American consumers are turning to personal loans.

Outstanding personal loan balances have more than doubled in the past four years, reaching $112 billion in 2017, according to data from Trans Union.

4 ways long-term personal loans can help your finances



1. You want low monthly payments


If keeping your monthly payments as low as possible is important to you, then long-term personal loans can help.

It all comes down to loan amortization — or the calculation lenders use to set monthly payments. Amortizing a loan means calculating a fixed monthly payment that will cover interest and repay the principal (the original amount you borrowed) over the course of your loan term.

The longer your loan term, the more monthly payments you’ll make. A three-year loan has just 36 payments, for instance, while a five-year loan has 60.

With the principal divided up over more payments, that means a lower monthly minimum. Ultimately, choosing a longer term can free up hundreds of dollars each month. Try out our personal loan calculator and see for yourself how longer terms can lower your monthly payments.

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2. You need to borrow a large amount


Another reason to choose a long-term personal loan is if you have to borrow a large amount. You might need a large personal loan to cover major costs for:

  • Consolidating credit card balances and other debts
  • Financing major home repairs or improvements
  • Covering emergency costs or expenses, such as medical bills
  • Paying for major life events, such as a wedding or a divorce

Signing on for a large loan can be intimidating. But choosing a longer loan term can help keep monthly payments manageable.



3. You’re using a personal loan instead of credit cards


Maybe you already have significant credit card debt. Or you’re considering paying for a major expense, such a home repair, with a credit card. In these cases, long-term personal loans are often a better alternative.

Here are a few reasons why personal loans might be a smarter choice than credit cards.

Set payoff date

Your monthly payments are always the same with long-term personal loans, and you know when you’ll get out of debt.

Credit card minimum payments, on the other hand, can stretch out repayment for decades. For instance, it would take you 22 years to pay off a $4,000 credit card balance with a 13.61% APR if you were making minimum payments.

Lower interest charges

No matter what your credit is like, personal loans usually come with lower interest rates than credit cards. That means more of your payments will go toward lowering your principal and paying off your debt instead of interest.

One-time funding

Lastly, credit cards can be tricky because they are a form of revolving credit, which means you can continue borrowing and paying off your balance. Even if you pay off $500 on a credit card, it can be all too easy to turn around and rack up another $500.

A long-term personal loan, on the other hand, provides a one-time payout. By understanding how personal loans work, you can avoid the revolving debt trap of credit cards.


4. You want flexibility to pay less if needed


Of course, there’s no set-in-stone rule that says you have to pay only the monthly minimum on long-term personal loans. In fact, it would be wise to make extra payments to get ahead of interest charges and pay off the debt faster.

For instance, you might think you could manage to pay $900 on a personal loan some months — but not every month. Perhaps you feel more confident about the $600 monthly payment for a five-year term.

You could choose the five-year term and have the flexibility to pay extra when you can. But should a month come along that you need that $300 for something else, you can pay the minimum payment without getting behind on your loan or damaging your credit score.



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Important Consumer Notice**
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