How to Decide Which is Best

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Personal loans can come in handy when you need funding in a pinch for a big expense, such as a wedding, funeral, home repairs, a car repair, debt consolidation and more. One of the most important factors to consider when choosing a personal loan is the repayment period. How long you have to pay the loan back influences your monthly payments, interest rates and more. So if you’re having trouble deciding how long of a term you should go with, here are some helpful pointers to keep in mind.

How long are most loan repayment terms?

Loan repayment terms typically range from two years to five years. Any loan that requires repayment outside that range could be considered either a short or long-term loan, though no strict definition exists.

Monthly payments — why longer means lower

When you choose a personal loan with a short repayment term, you’ll pay off the loan sooner and won’t have it hanging over your head for longer than you’d like. But this comes at the cost of higher monthly payments compared to a loan with a longer repayment period. That’s because personal loans must be repaid in fixed, equal monthly payments.

Aggressively paying down your debt can impact how much room you have left in your budget each month for other expenses. This is where selecting a loan with a longer term can ease some of that financial strain. Selecting a longer loan term usually means lower monthly payments, since you have more time to pay back the balance.

Select rounded up some of the best long-term personal loan lenders. The longest repayment term on the list was up to 144 months (12 years) offered to qualifying borrowers through LightStream. LightStream borrowers can also apply for as little as $5,000 and as much as $100,000. But if you don’t need to borrow as much as $5,000 and need a lender that funds smaller loan amounts, Upgrade is a solid choice. This lender offers repayment terms as long as 84 months (seven years).

LightStream Personal Loans

  • Annual Percentage Rate (APR)

    5.99% to 21.49%* when you sign up for autopay

  • Loan purpose

    Debt consolidation, home improvement, auto financing, medical expenses, wedding and others

  • Loan amounts

  • Terms

  • Credit needed

  • Origination fee

  • Early payoff penalty

  • Late fee

Upgrade Personal Loans

  • Annual Percentage Rate (APR)

  • Loan purpose

    Debt consolidation/refinancing, home improvement, major purchase

  • Loan amounts

  • Terms

  • Credit needed

  • Origination fee

    2.9% to 8%, deducted from loan proceeds

  • Early payoff penalty

  • Late fee

    Up to $10 (with 15-day grace period)

Interest charges — ripping off the Band-Aid

The downside to choosing a personal loan with a longer repayment term is paying more in interest charges over the life of the loan. Since lenders charge interest payments monthly, a longer loan term inherently means more interest payments.

Taking on a personal loan with a shorter term will help you save on interest charges (at the trade-off of having larger monthly payments, of course). But if a longer term with more interest makes more sense for your financial situation, there are a few things you can do to make sure you’re paying as little interest as possible.

First off, before you apply for a personal loan make sure you improve your credit score if it’s less than ideal. Lenders evaluate your creditworthiness when approving you for the loan and determining what interest rate you’ll be charged. The higher your credit score, the lower your interest rate will be, which means you’ll spend less on interest payments over the life of the loan.

It’s also a good idea to double check if your lender offers an APR discount for making your monthly payments through autopay. As the name implies, autopay automatically pays your bill each month from an account of your choosing, ensuring you’ll never forget a payment. SoFi and LightStream are just a few lenders that offer a 0.25% APR discount for using the autopay.

SoFi Personal Loans

  • Annual Percentage Rate (APR)

    7.99% to 23.43% when you sign up for autopay

  • Loan purpose

    Debt consolidation/refinancing, home improvement, relocation assistance or medical expenses

  • Loan amounts

  • Terms

  • Credit needed

  • Origination fee

  • Early payoff penalty

  • Late fee

Other considerations

If choosing a longer term loan makes financial sense for your monthly budget despite the accrued interest over time, avoid lenders that charge prepayment penalties. Choosing a lender that doesn’t charge these fees means you can make extra payments to your balance without being punished for it, which saves you interest over time. Select covered a few lenders that don’t have an early payoff penalty.

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Bottom line

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.

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