Long-term personal loans: What are they?
Many can find themselves in a situation where they have unexpected costs and they are not sure how to pay for them. Whether these come from medical expenses or car repairs, you may find yourself searching loan options in order to pay for these. One of these options is long-term loans, where you borrow a large sum of money and repay through smaller monthly payments over a period longer than a year. This guide will take you through everything you need to know when comparing long term options, and the advantages and disadvantages of this type of borrowing.
In This Guide:
- What is a long term loan?
- How to receive a long term loan
- How to manage a long term loan
- Advantages of a long-term loan
- Disadvantages of a long-term loan
- Can I get a long term loan with bad credit?
What is a long term loan?
Typically, when we speak of a long-term loan it means that a loan that is paid off over a period that is longer than a year. These sort of personal loans are often used when you have to pay for a sudden unexpected large expense, such as medical bills or car repair. They involve borrowing money with a pre-agreed schedule to pay it back.
How to receive a long term loan
In general all creditors will offer some sort of long term loan. Once you apply for the loan, there will be a mandatory check on your credit history by the National Credit Advisor (NCA) so that the lender can make sure you keep up with the monthly repayments. During you application you will have to produce a proof of address, ID, last three months bank statements and your latest payslip.
How to manage a long term loan
When receiving a long term loan it is important to keep a few things in mind in order to manage it effectively:
- Don’t extend: Often because the loan is over such a long period of time it might be tempting to extend your repayment period in order to make the monthly payments lower. However, you should avoid doing this because this will only make your payments higher overall. As with any debt, the earlier you pay it back the better.
- Don’t skip payments: As soon as you begin to skip payments you end up increasing your interest. It is important to plan ahead to figure out what months will be expensive, such as December. This means you can put some money away for months that are tighter financially.
- Pay off more when you can: When you get any spare money, say from a bonus or when you have had a cheap month, you should pay off the loan when you can. Important to make sure your loan does not have any ‘early repayment fees’ as they can charge you for trying to pay it off early.
Advantages of a long-term loan
- The longer the term, the lower the monthly payment, meaning that you can budget effectively.
- Longer term loans are normally more flexible in how and when you pay them back.
- Short-term loans, from places such as loan sharks, will often offer you a much higher interest rate.
Disadvantages of a long-term loan
- Depending on the specifics of your loan, they might actually charge you if you try to pay it back early.
- There can be hidden fees for missing payments that you should be aware of.
- Because you are paying back the loan over a longer period, you will generally end up paying a larger sum overall.
Can I get a long term loan with bad credit?
Just because you have bad credit does not mean you cannot get a long term loan. Firstly, you make sure you absolutely need it, as if you have bad credit you have shown before to be unable to manage loans. If you are struggling with debt and need a long term loan, you can turn to debt consolidation. This is when you take out one large loan to pay off all of your creditors, and just pay this back with one simple monthly payment. However, if you have bad credit lenders will normally ask for you to ‘secure’ this loan against your house or car. This means if you fail to pay it back, they are legally allowed to repossess these assets as collateral.