Your guide to long term personal loans

When we talk about loans, we spend a lot of time talking about what sets them apart or why you might want to go with one over another. What we don’t tend to talk about as much is why you might choose a long term loan or short term loan, important parts of the personal loans process that can’t go overlooked.

Much like other personal loans you might have encountered, a long term personal loan is a set amount of money you borrow from a bank or lender that is paid back over a set term along with any fees and interest.

The term of a loan refers to how long it will be paid back over. A longer term loan tends to come with smaller monthly repayments, or can make large loan amounts more feasible to pay back with more manageable instalments. Conversely, the longer the term of a loan, the more interest you will pay back.

What sets it apart as a long term loan? Generally speaking, a short term loan will be repaid over the course of 1-4 years, while a long term personal loan is repaid over 5-7 years (with some lenders offering terms up to 10 years).

Imagine you are looking to borrow $30,000. 

You have a choice between a short term loan, paid back over 3 years, or a long term personal loan that is paid back over 7 years. Both are unsecured loans and offer an interest rate of 9.00% p.a. 

Let’s take a look at those options with the personal loan repayments calculator.

Short term loan: Over a 3 year term, assuming there are no extra repayments and no fees we forgot to mention, you’ll pay $4,344 in interest. Your monthly repayments will work out to  $954.

Long term loan: Over a 7 year term, you’ll pay $10,544 in interest. This assumes you make all your payments on time and there aren’t any establishment fees we neglected to call out! Your monthly repayments will be $483.

What it comes down to is what is more important to you. Shorter terms will mean you pay less interest over time, but a longer term will mean more manageable repayments - especially for larger loan amounts.

Depending on the long term loan you end up choosing, you can use them for a wide variety of things. Most lenders will allow you a great deal of freedom once you’ve been loaned money, while others require a bit more specificity - for example, a car loan or motorcycle loan. 

Since long term personal loans are more common for larger amounts of money, there does tend to be a lot of options with longer terms when it comes to home renovation loans, medical loans, and holiday loans. Other loans, like green loans, can require you to demonstrate proof that the money has been spent on environmentally friendly products.

The longest term personal loans in the Mozo Database are 10 year personal loans. There are several of these available, including the RACQ Bank Green Personal Loan, Handypay Green Loan, Community First Credit Union Home Improvement Loan, and Queensland Country Bank Green Reno Loan.

When it comes to 7 year loans, there are plenty on the market - more than 50 in Mozo’s database. Search to find a loan that fits your requirements, and use the personal loan repayments calculator to find out how much interest you will end up paying.

Like with all loans, there are many things to consider when looking at a long term personal loan. The following are categories loans that apply for both short and long term loans:

• Secured: A secured long term loan is locked in against a valuable asset, assuring the lender that you’ll be paying them back. If you can’t make your repayments, the lender can recover their losses by selling your security (think a car, or property). There is more risk for you if you can’t make your payments, but in exchange, your interest rates are usually lower.

• Unsecured: Instead of being held against property, unsecured long term loans are based on your lender’s credit assessment of you. Without any assets at risk, you’ll tend to get a higher interest rate.

• Fixed rate: A fixed rate long term loan keeps the same interest rate for the length of the loan. When you’re paying off a loan over the course of years, this can make a real difference - particularly in a market where rates are rising.

• Variable rate: Meanwhile, a variable rate loan can have changing interest rates over the course of the long term loan. You’ll be more likely to feel the impacts of a variable rate over a longer term - they can be great when rates are dropping, and then sting as they rise.

You’ll be with this loan for the long haul, whether it’s 5 or 10 years, so it’s important not to settle for the first loan you see. There are many features to look for in a long term loan that could make it fit your needs much better for the long haul. 

• Flexible repayment schedule: Being able to schedule your repayments in time with your pay can make a loan much more manageable over time. The last thing you want over an extended loan is to find yourself racking up late payment fees.

• Extra repayments: At some point over the course of a long term loan, you might find yourself with a little bit of money to spare. In order to pay down your loan quicker, it’s handy to find a loan with an extra repayment facility - that doesn’t charge a fortune for the luxury!

• Redraws: At some point over the 5 to 10 years of your loan, you might find yourself needing extra cash. If so, it’s useful to be able to reach into the extra money you’ve already paid on your personal loan and withdraw it. This is called a redraw facility, and many loans charge high fees on these or do not allow them at all.

• Early repayment or break costs: Put in enough extra that you’ve found yourself able to pay off your loan early? Some loans charge for the luxury of paying off your loan early, which could be a major inconvenience.

• Speed: When taking out a loan, consider how fast you need the money. All loan approvals and fundings take time, though this can be faster with online lenders and peer to peer providers.

Borrowing amounts can be restricted based on your creditworthiness. Secured long term loans will generally be available for more money than unsecured long term loans.

Currently, the maximum amount you can borrow for a long loan term in the Mozo database is $90,000 unsecured, and $250,000 secured.

Eligibility for a long term loan will depend on the individual lender, as each has their own eligibility criteria. Some key things to keep in mind for long term loan eligibility include that you are:

• Over 18

• A permanent resident or citizen of Australia - this is required for most loans, but some will have small loans available to temporary residents.

• Creditworthy - you may be denied a long term loan if you do not have a satisfactory credit score, but there are ways to improve your credit score.

• Earning an income - some personal loans will have an income threshold they require you to meet. See our guide to low income personal loans for more information.

• Employed - some loans require you to be employed, but others will accept Centrelink payments as income.

If you’re looking for a loan, long-term or otherwise, check out Mozo’s selections for the best personal loans.