What is a long term loan?
A long-term loan is when you borrow money and pay it back over a long period of time - typically 3 to 15 years or more- meaning you can spread the cost over an extensive stretch of time.
Loans for large amounts paid back over a long term will usually need to be secured against an asset like your home, which lowers the risk to the lender but heightens the risk for you.
How long is a long term loan?
There’s no official time frame for what makes a loan long term. Loan providers all have their own definitions of how many months a customer takes to pay the money back on a loan before it’s classed as ‘long term’.
Some providers might describe borrowing over 12 months long term, while others would consider a long term loan as borrowing over three or five years or more.
Typically long term loans last up to 15 years, but there are specialist forms of lending that can last up to 30 years, such as a mortgage or student loans.
What are the different types of long term loans?
There are many different types of long term loans to choose from. Which is best for you will entirely depend on your circumstances and what you need the loan for.
Long Term Personal Loans
A long term unsecured personal loan usually has fixed interest rates, and you’ll repay what you borrow in monthly instalments. Personal loans are the most common type of long-term unsecured loan.
People take out personal loans for various reasons, including home improvements, dream holidays, weddings, and to save money on interest-bearing debts by consolidating existing credit products such as multiple credit cards.
A secured loan is a type of loan guaranteed by an asset such as your home, meaning that if you can’t repay what you owe, your loan provider could have your home repossessed to repay what they’ve lent to you.
Secured loans usually have lower interest rates because they’re a lower risk for lenders but a higher risk for you.
A car loan is a type of long term borrowing used to purchase a new or used vehicle. They work the same way as a personal loan - you’ll repay what you borrow in monthly instalments and have a fixed interest rate.
A mortgage is a type of long term loan to purchase a property. Mortgages typically have much lower interest rates than other types of long term loans because they’re secured against the property you buy.
A mortgage is a type of secured loan, which means if you default on the loan, your lender could repossess your home to repay the loan.
You can only borrow the percentage of the house price the lender is willing to fund - known as loan to value (LTV), so if you want to buy a home that’s priced at £200,000 and the lenders maximum LTV is 95%, then the maximum you could be loaned is £190,000. With a first-time buyer mortgage, you’re likely need a 5% - 15% deposit saved.
A student loan is a type of loan designed for students in higher education to cover the cost of tuition fees and living expenses. It differs from other types of loans because interest rates tend to be very low and the repayment schedule can be deferred while the student is still at university.
In the UK you don’t need to start repaying your student loan until you earn a certain amount after graduating and the repayments are made directly out of your wages.
How to get a long term loan?
You’ll want to do a few things before applying for a long term loan;
Use a comparison site
You should compare long term loans on a comparison site like ours to find out the difference in APRs and fees to work out which one will be the right one for you.
Check your eligibility
In order to be approved for a loan in the UK you must;
- Be a UK resident
- Be over the age of 18
Comparison sites will help you to check if you meet the eligibility criteria for various loan providers before you apply.
Lenders will require you to pass their affordability checks, and they’ll also want to check your credit rating to see how you’ve handled credit products in the past.
Lenders will also want to know about;
- Your income
- Employment status
- Your payment history on other debts
- Whether or not you own a home
- How many people depend on you financially
- Your outgoings
Check your credit score
Having a good credit score is one of the most effective ways to increase your chances of being accepted for loans with the best rates. A good credit rating demonstrates to lenders that you can be trusted to repay your loan on time.
If your credit score is poor, there are things you can do to improve it. These include;
- Registering to vote
- Limiting new credit applications in a six month window
- Correcting any mistakes on your credit file
- Not withdrawing cash on credit cards
- Paying your bills on time and in full
- Keeping old accounts open
Where can I get a long term loan?
There are several ways to find loan providers willing to lend to you.
The quickest, fastest way of searching for a lender is online using a comparison site to compare rates and check your eligibility before you apply.
You don’t need to use a laptop or a computer either - you can apply for a long-term loan with any device with access to the internet, including an iPad or mobile phone.
Long term loan direct lenders can also be found on the high street. You could walk into any bank or building society in the country to inquire about a loan, but this would take time and patience because, sadly, many bank branches have closed in recent years or have limited opening times.
What are the advantages and disadvantages of long term loans?
- Some lenders are more likely to lend you more money if you repay your loan over an extended period of time
- You’re likely to get a lower rate of interest by taking out a long term loan
- You get to choose how long it takes you to repay your loan
- You can spread the cost of borrowing over a long time, meaning you can keep your monthly repayments low
- Even though interest rates on long term loans tend to be lower, because it takes you such a long time to pay the loan back, overall, you’ll likely pay a lot of money in interest
- It can be more challenging to be approved for a long term loan
- If you want to repay your long term loan off early, you may be charged a fee
- It’s a long term commitment, and you can’t always predict your financial circumstances that far into the future
How can I get approved for a long term loan?
To improve your chances of being approved for a long term loan, you’ll need to get your credit score in the best shape possible. Your credit score can fluctuate monthly and there are ways to improve it over six months if it’s currently poor.
If you have no or little credit history, you can build it up over six months to give lenders an indication of what type of borrower you are by applying for credit products such as a mobile phone contract or credit card for bad credit.
You should see your credit score improve as long as you always pay back what you owe on time.
You also need to ensure you’re registered to vote at your current address and sort out any errors on your credit report.
It’s worth checking your credit report to see if you’re still financially associated with anybody you once had a financial product with.
For example, if your name was on the utility bills of an old house share alongside your housemates, and any of them have a bad credit history, it could affect your credit score.
You can ask credit reference agencies to remove financial associations from your credit report so long as you're no longer financially linked to them.
You can check your credit report for free with various organisations.
Long Term Loans FAQs
Most long term loans are between 3-15 years, but some specialist long term loans last as long as 30 years, such as mortgages and student loans.
This will depend on your circumstances, what you want to use the loan for and how much you need to borrow.
Long term loans tend to charge lower monthly interest rates and long term loan providers will usually lend you more money, but they can be hard to be approved for if you have bad credit.
Short term loans are a good option if you only want to borrow small amounts of money, but you’re likely to pay higher interest rates on shorter term loans.
Generally speaking, no - long term loans tend to charge lower rates of interest compared to short term loans, but you’ll want to compare the total cost of repaying a loan if you're going to work out the cheapest form of borrowing.
The longer it takes to repay a loan, the more interest you’ll pay, so sometimes, paying higher interest on a short term loan that you pay off in just a few months might work out cheaper in the long run.
Yes, getting long term loans for bad credit is possible, but you’re likely to find your choice of lenders is reduced, and the amount of interest you’ll pay will be higher.
It can be more difficult to be approved for a long term loan with poor credit, but it’s not impossible.
The best thing to do is try to improve your credit rating before applying for a loan if you’re not desperate for the money straight away and can wait six months before applying.
Most overdrafts are intended for short term use and aren’t designed to be used over a long period of time. Because of this, overdrafts tend to be a very expensive form of borrowing and, therefore, won’t be cheaper than most long term loans.