What is a Long-Term Personal Loan, and How Does it Work?

If you’re facing a major expense like a medical bill or home repair but don’t have enough cash to cover it, a long-term personal loan could help you fund it. Long-term loans give you more time to repay what you borrow, often with smaller, more manageable monthly payments. Let’s look at how long-term loans work and whether they could be a good fit for your financial goals.

What is a long-term personal loan?

A long-term personal loan is an installment loan that allows you to borrow a lump sum of money and pay it back in fixed monthly installments over an extended period of time. Personal loans typically have repayment terms that last between one and five years, though it can vary between lenders.¹ Choosing a personal loan with a longer repayment term can make monthly payments more affordable and may allow you to borrow a larger amount. However, it’s important to remember that the longer your loan term, the more interest you’ll likely pay over time, which can increase your overall cost of borrowing.

You can use a long-term personal loan for a range of needs, from consolidating debt to covering emergency expenses to making a planned home improvement. Depending on the lender, you may be able to borrow as little as $1,500 or as much as $100,000.

How do long-term personal loans work?

Long-term personal loans work just like other personal loans, but with a longer repayment term. You receive a lump sum of money upfront, which you repay over time in fixed monthly payments. Each payment includes a portion of the principal (the amount you borrowed) and interest (the cost of borrowing).

A long-term personal loan may be secured or unsecured. A secured loan is backed by collateral — something valuable that you have, such as a car. If you can’t repay a secured loan, your lender has the right to take your collateral. Collateral makes secured loans less risky for lenders, so you may be able to borrow more money or get a better interest rate this way.

An unsecured loan doesn’t require collateral. With an unsecured loan, you’ll qualify based on factors like your credit history, credit score and income. OneMain works with a wide range of credit scores and takes your whole financial picture into account to find a personal loan that’s right for you.

How to apply for a long-term personal loan

A great way to find out what long-term loans are available to you is to see if you’re prequalified. Prequalifying gives you a preview of how much money you may be able to borrow, but the final terms will depend on the additional details you provide in a full application. Checking for prequalified offers triggers a credit check called a “soft pull” that doesn’t affect your credit score. At OneMain, you can check to see if you pre-qualify in just a few minutes.

Once you see prequalified offers, you might decide to apply for a loan, which will trigger a “hard pull” that will temporarily lower your credit score. Depending on the lender, you can apply online, by phone or in person at a local branch. Here are a few documents you may need to share before you finalize your loan (you may be asked for more based on your personal situation):

• A valid, government-issued ID (driver’s license or passport)
• Proof of residence (driver’s license with current address, utility bill or signed lease)
• Proof of income (pay stubs or tax returns)
• Your vehicle’s title and valid proof of car insurance (for collateral for a secured loan)

If you’re approved for the loan, you’ll receive the funds, usually via direct deposit, debit card or check. Then you’ll be required to make regular monthly payments based on the terms of your loan until you pay it back completely.

Short-term vs. long-term personal loans

The main difference between short-term personal loans and long-term personal loans is the length of the repayment term. Short-term loans may last only a few weeks or months, while long term loans may last several years.² Some types of short-term loans, such as payday loans or title loans, may have extremely high interest rates, as well. Short-term and long-term personal loans may both provide you with the funds you need to cover a planned or emergency expense. At OneMain, loan terms vary by customer and their personal needs, but they typically have a repayment term of two to five years.

Since you’ll have more time to pay back a long-term personal loan, you can expect smaller monthly payments, depending on your loan amount. It’s important to note, as previously mentioned, that you’ll spend more on interest over the life of the loan, because you’ll have to pay interest for a longer period.

Here’s an example: Let’s say you want to borrow $10,000. You qualify for an 18% APR and can choose a three-year or five-year loan. This table shows the difference in monthly payments and interest for the two options.

	3-year personal loan	5-year personal loan
Estimated monthly payment	$362 plus fees	$254 plus fees
Total interest paid	$3,014.86	$5,236.06

Benefits of long-term personal loans

Before you move forward with a long-term personal loan, here are some benefits to consider when deciding if it’s the right choice for you:

• Funding for important expenses: A long-term personal loan can cover expenses that can’t wait, including car and home repairs or medical and vet bills. They can also fund planned purchases like a car, a home renovation, vacation or wedding.
• Easy application process: In many cases, you can apply for a long-term personal loan online and receive a response in minutes. You won’t have to wait days or weeks for a decision.
• Affordable monthly payments: When you spread your loan repayment over a longer period, your monthly payments will be smaller and more manageable, but remember, you’ll pay more interest in the long run.
• Fast funding times: Depending on the lender, you may receive your funds the same day you get approved or in a few business days. At OneMain, for example, you can often get your money as soon as 1 hour after loan signing.

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Fund your goals with a long-term personal loan

If you’re facing a large expense and need a loan with smaller monthly payments, a long-term personal loan might be worth exploring, especially if you’ve exhausted alternatives like short-term loans, home equity loans or loans from friends and family. While the time it takes to repay the loan may be a bit longer, the predictability of fixed terms and affordable payments may make a long-term loan the right option for you, depending on your needs and budget. Each type of loan has its own eligibility requirements, costs and associated risks. As always, it’s important to consider your needs and financial situation before deciding which option is best for you.

Sources

1 https://www.experian.com/blogs/ask-experian/how-to-choose-the-best-loan-term-for-your-needs/
2 https://www.bankrate.com/loans/personal-loans/risks-of-short-term-loans/