Long-term loans guide – are they a good way to borrow?

A long-term loan is a loan with a repayment period of anything from 12 months to 30 years, or even longer in some cases.

The phrase “loan term” simply refers to the length of time over which the money is borrowed and gradually repaid.

With a long-term loan, monthly repayments are generally lower and you may be able to get a lower APR. However, you may pay back more in interest overall than you would borrowing across a shorter term.

When you take out a loan, the offer you agree to will include a repayment schedule, which states the number of months over which the debt will be repaid. This is the loan term—and it can have an impact on the amount you repay each month, the interest you are charged, and the amount you repay in total.

Say you’re looking to borrow £2,000, for example—you could borrow it over a shorter 6-month period, or spread it over a longer term, like 3 years.

Over the loan term of 6 months, the repayments would breakdown something like this:

• Amount borrowed: £2,000
• APR (Annual Percentage Rate, the interest rate): 19.7%
• Total repayable amount: £2,107.00
• Monthly repayment: £351.17
• Amount the loan will cost you: £107.00

Whereas, in comparison, a longer loan term of 5 years would look like this:

• Amount borrowed: £2,000
• APR (Annual Percentage Rate, the interest rate): 19.7%
• Total repayable amount: £3,054.87
• Monthly repayment: £50.91
• Amount the loan will cost you: £1,054.87

As you can see—the longer the loan term is, the less you’re paying each month, but the more you’re paying in total.

Of course, not all lenders will be willing to offer a loan with a longer term, particularly if the borrowed amount is lower or the applicant has a lower credit rating. Equally, you might not be able to borrow over a shorter term if the lender feels you might not be able to afford the higher repayments.

Finding the right loan term can be a balancing act between your borrowing needs and what lenders are willing to offer.

This is where we can help, with free tools to help you explore what’s out there and weigh up your options, without committing to anything or impacting your credit score. If you’re interested in learning more, you can check your eligibility for long-term loans using our online eligibility checker.

How much can I borrow with a long-term loan?

With a long-term loan over a minimum of 12 months, you can typically borrow anything from a £500 loan up to amounts as high as £500,000 and beyond.

Naturally, the amount you can borrow will depend on your circumstances—like your income and credit rating—as well as the type of loan and the length of time you’re looking to borrow over.

How long are the repayment terms?

Repayment terms for long-term loans will generally range from 12 months (1 year) to 30 years.

The loan term will often depend on the amount being borrowed, along with the credit rating and income of the person applying.

Loan terms can be longer, particularly for certain types of loans designed for longer borrowing periods, like mortgages.

Long-term loans can be especially helpful when borrowing a larger amount for a big project, like making renovations to your home, getting married, or buying a new car.

As a result, getting a long-term loan can often be an exciting time, as you start to see your ideas become a reality.

On the other hand, long-term loans can also be an effective option for anyone looking to consolidate existing debts. By combining multiple existing debts into a single monthly repayment, spread out over a longer period, you’ll benefit from lower monthly repayments at the expense of likely paying more in total at the end.

If you’re borrowing to consolidate debts, it’s best to assess what’s right for you: either spreading your costs over a longer term to make the monthly repayments more manageable, or shortening the loan term to pay off your debts quicker.

So far in this guide, we’ve only referred to “long-term loans” as a broader, catch-all phrase for any borrowing over a longer period.

But in reality, there are a number of types of loans that allow you to borrow in the long term. We’ll explore these, along with their typical uses and things to consider, below.

Unsecured long-term loans

An unsecured loan, also known as a personal loan, is a loan that isn’t tied to any other assets, like your home.

As a result, lenders rely more on factors like your credit history and income to determine whether you are eligible, and will typically offer lower amounts over shorter periods.

An unsecured loan will generally allow you to borrow between £500 and £35,000, over a period of 1 to 7 years. The exact figures will of course depend on the lender, the amount you’re looking to borrow, and your own circumstances.

Secured long-term loans

By contrast, secured loans allow you to secure the loan against your home. This provides additional security for the lender, meaning they’ll be more willing to lend larger amounts spread over longer terms, and less reliant on your credit score as an indication of your eligibility to borrow.

With a typical secured homeowner loan, you can borrow between £5,000 and £500,000 over a period of 1 to 30 years. 

It’s important to note that secured debt against your property must be repaid on-time for the full duration of your loan term.

Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.

Mortgages

A mortgage is a unique type of long-term secured loan, specially designed to help with buying a house.

With a mortgage, the debt is secured against the property it’s being used to purchase. In other words, you place a deposit on the property and the mortgage provider covers the rest. You then repay the outstanding amount, plus interest, over an agreed term. Once the debt is repaid, along with any interest, you will have paid off the mortgage and will own the property.

Due to their nature, mortgages will usually be repaid over a long term, depending on the value of the property, the size of the deposit, and the affordability for the person applying.

As a result, a mortgage can often have a term of up to 30 or 35 years.

Just like secured loans, debt secured against your property through a mortgage must be repaid on-time for the full duration of the mortgage term.

Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.

While long-term borrowing has its benefits, these also come with some considerations to keep in mind.

Long-term loan advantages

• By spreading the debt over a longer period of time, you’ll be paying less each month
• You could be offered a lower interest rate—though you will be paying interest for longer, which may make it more expensive in total
• You will generally be able to borrow more, as the monthly payments will be more affordable

Long-term loan disadvantages

• You’ll be paying more overall than you would with a shorter-term loan, despite lower monthly repayments and typically lower interest rates, because you will be paying interest each month over a longer period
• You’ll be committing to monthly repayments for a long period of time, potentially for several years—keep in mind that what you can afford right now needs to be affordable in the future as well
• If you are borrowing a large amount, or over a period longer than 7 years, it will likely be with a secured loan—your home may be repossessed if you do not keep up with mortgage or secured loan repayments

While long-term loans allow you to spread repayments over a longer period, short-term borrowing pays off the debt quicker, meaning you pay less interest in total.

If you’re looking to borrow a large amount, it’s more likely to be a long-term loan. Whereas for smaller amounts, like covering the purchase of a new sofa or laptop, a short-term loan can be an ideal way to pay over a few months, rather than paying in full upfront.

It’s ultimately best to assess what makes the most sense for your needs and financial situation. On the one hand, you could spread your costs over a longer term to make the monthly repayments more manageable, or shorten the loan term to pay off the debt faster and with less interest.

Are long-term loans cheaper than short-term loans?

The question of which term length is cheapest depends on how you prefer to define cheap.

As we’ve covered earlier in this guide, there are two ways to look at the cost of a loan:

• How much you repay each month
• How much you have repaid in total at the end of the loan term

If you feel that affordability comes down to the amount you repay each month, then you might prefer a long-term loan due to its lower monthly repayments.

Whereas if you’d like to pay less overall, then short-term loan would be the more affordable option by that definition.

To put it another way—long-term loans are more affordable in the short term, while short-term loans are more affordable in the long term.

Your eligibility for a loan will vary depending on the criteria of the lender, however there are a few common factors that lenders will take into consideration. These include:

• The amount you’d like to borrow
• Your income
• Your debt-to-income ratio (the amount you already owe in existing debts)
• Your credit history

If you can demonstrate that you can afford the repayments and have a proven record of borrowing and repaying debts on time, as shown in your credit report, you have a good chance of being approved.

If your credit history isn’t as strong as you would like, it doesn’t necessarily mean you won’t be able to borrow. Some lenders offer loans specifically for those with lower credit, which you can find using soft search tools like our loan eligibility checker.

You can also look into a secured homeowner loan, which ties the debt against your property as security, meaning the lender doesn’t rely so heavily on your credit history.

Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.

When it comes to borrowing, there is no single “best” option.

Instead, it will come down to what makes the most sense for your needs and circumstances.

To help you weigh things up, here are some things to ask yourself while you consider your options:

• Would you prefer to pay less each month, but commit to paying more in total?
• Can you see yourself making payments over a number of years?
• Is your income stable for the foreseeable future, and do you have a backup source of income that can cover repayments in the event something changes?
• Are you looking to borrow for longer than 7 years? If so, are you a homeowner and are you willing to secure debt against your property?

Please note: Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.

If you answered yes to the questions above, then it’s a sign that long-term borrowing might be the right solution for your needs.

If so, the next thing on your agenda will be to shop around and find the right long-term loan for your circumstances.

If you’re ready to find a long-term loan, it’s simply a case of browsing the options, selecting a lender, and making your application.

We’ll outline how to approach each of these steps in the sections below.

How to choose a long-term loan

Choosing a loan is all about browsing the options available on the market.

Of course, with so many lenders out there, it can be difficult to know where to start. This is where we come in.

As a broker, we have access to a vast panel of lenders, catering to a wide variety of circumstances, loan terms, and borrowing purposes.

To get started exploring your options, you can head over to our free tool to check your eligibility. Simply enter a few details about yourself and what you’re looking for. We’ll then run what’s known as a soft search on your credit history, meaning that it won’t appear on your credit report.

This helps us to match you with lenders that are suitable to your needs and more likely to approve your loan application.

What do I need to apply for a long-term loan?

To apply for a loan, you’ll need to provide personal information about yourself, which may include:

• Your name and address
• Your income
• Additional details about your background and personal circumstances

The good news is that, if you’ve used our free loan eligibility checker, you’ll have already provided most of this information, so making your application will just take a few clicks.

If you’re applying for a secured loan, you’ll also need to provide details about your property, including paperwork and other documents. As a result, secured loans can take a little longer to be processed than unsecured loans.

How can I increase my chances of getting approved for a long-term loan?

We’ve already covered typical long-term loan eligibility criteria, such as your income and credit history, but what can you do to increase your odds?

Well, in addition to long-term improvements to boost your credit score, one of the best things you can do to improve your approval chances is to choose a loan wisely.

This means taking time to explore the market, understanding your credit history, and being rational about what is realistic.

Thankfully, with tools like our eligibility checker it’s easy to make a smart choice.

Looking for further guidance? Find answers to some of the most common questions about long-term borrowing below.

Can I get a long-term loan with bad credit?

Even if your credit score is lower than you would like it to be, it doesn’t necessarily mean you won’t be able to borrow.

In some cases, it may simply be that you need to find a lender that caters for applicants with low credit scores. This is where tools like our free loan eligibility checker can help.

Do I need a guarantor to get a long-term loan?

If you have a low credit rating, lenders may require you to have a guarantor before they lend the money over a long term.

A guarantor is someone who is accountable for the debt, in the event you cannot pay. This means that it needs to be someone who trusts you and is willing to put their own credit history forward to increase your chances of approval.

While guarantors aren’t always required by any means, they may be necessary in certain circumstances. This will ultimately depend on the lender and their own criteria.

Can I pay back a long-term loan early?

It is possible to repay a loan in full ahead of schedule and some of our lenders don’t charge any early repayment fees to do this.

However, it’s worth noting that your lender may apply early repayment charges to account for the fact you’ll be paying less interest as a result of paying off the loan sooner.