A long-term personal loan allows you to borrow a huge sum of money that you can repay over several years. The maximum repayment period for a long-term personal loan is 7 years. It becomes difficult to find a personal loan that has a repayment period of more than 7 years. The loan amount that you can borrow typically lies within £1,000 to £35,000. Such a financing option is feasible when you are considering to fund a big-ticket item. For example, you are juggling with multiple debts and it is becoming tad difficult to keep a track of your money. You can consolidate your debts with a long-term personal loan.
Why do long-term loans have higher interest rates?
The answer is very simple. The longer your loan repayment period, the more you will pay as interest. Therefore, the rate of interest can vary according to:
- The loan amount you choose to borrow
- Loan term
- Your income
- Your expenses
- Debt utilization ratio
- Your credit score
Another reason for high-interest rates may be the risk that the lender will have to take is higher with a long-term loan.
Do you need a guarantor for a long-term loan?
Whether you need a guarantor for a loan or not depends on your credit score. If you do not have a good credit score, you can use a guarantor for a long-term loan. The guarantor will be liable to repay the debt if you fail to do so. Also, with a guarantor by your side, the lenders may offer you lower interest rates. You can also borrow a long-term loan with a guarantor if you are trying to improve or build your credit score.
What are the advantages of long-term financing?
Considering the pros and cons of a financial product before making a decision is a wise step. Here are some pros of a long-term personal loan:
Advantages of a long-term loan
- Lower monthly repayments
The cost of repayment can be spread over several years. It eases up the repayment process and allows financial breathing space to the borrowers. The monthly payments are usually less as compared to the monthly repayment schedule of a short-term loan.
- Borrow a large sum of money
With a long-term loan, you can borrow a large amount to fund your expenses. Whether you want to improve your current residential property, or you want to finance your dream vacation, a long-term loan allows you to gain access to a large sum of money.
What are the disadvantages of long-term financing?
Listed below are some major disadvantages of a long-term loan that you must consider to save yourself from financial disturbance:
Disadvantages of a long-term loan
- Longer repayment periods
This can become a financial burden. When you are taking out a long-term loan, you will have to be committed to the repayment schedule. Longer repayment period means you will have to be in debt for a long time.
- Risk of losing the collateral
If you somehow do not keep up with the repayments and you have used collateral to borrow this loan, then your security is at risk. Continuous failure in loan repayment may lead the lender to possess your property and sell it off to recover the money you owe to them.
Borrowing a long-term loan is a big financial decision that requires your commitment and discipline. Do not take out a loan if you are not fully aware of the Terms & Conditions. There will be consequences when you fail to repay it. Also, do not borrow an amount that you cannot afford to repay. Choose a loan amount according to your affordability so that you can repay the debt easily.