When you take out a personal loan, you may have the option to pay your loan off over several possible timelines. You might be able to pay it off in as short as a few months or you may have the choice to stretch payments out for a decade. There are advantages and disadvantages associated with longer repayment terms on personal loans.
Longer repayment terms on personal loans will lower your monthly payment and a long-term loan might make you feel as though you're under less pressure to get the loan paid back quickly. However, longer repayment terms on personal loans also make those loans more expensive.
The calculator below can help you see how different loan terms affect your monthly payment. Just enter the amount you plan to borrow, the term you want, and the interest rate. If you're not sure what interest rate to use, 14-18% is a good starting point for borrowers with average credit -- check out our guide to interest rates for personal loans for more information.
Some of the biggest benefits of choosing longer repayment terms on personal loans include the following:
These are all major benefits that should be carefully considered when deciding whether to choose longer repayment terms on a personal loan. If you don't have a ton of spare cash and you have other pressing financial needs, the benefits -- including a lower monthly payment -- will likely outweigh the downside.
While there are significant advantages to longer repayment terms on personal loans, there are some big downsides too. Here are some of the disadvantages:
As you can see, there are many situations where the disadvantages outweigh the benefits of longer repayment terms on personal loans. If becoming debt-free ASAP is important to you and you have the wiggle room in your budget to increase the monthly payment, a shorter repayment timeline is usually the way to go.
The right choice on your loan repayment timeline will vary depending on your financial situation, including how much flexibility you have in your budget, how much of a monthly payment you can afford, and what your money goals are. Before you decide whether you want a short-term loan or a long-term loan, carefully consider which will work best in your particular situation. Once you have your loan, you have to stick to the terms unless you refinance to a new loan with a different repayment timeline.
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