Long-term loans

What is a long-term loan?

A long-term loan typically lasts longer than a year. In fact, the repayments may be spread over several years or even decades.

A long-term loan can be a secured loan or a personal loan. But personal loans usually last for a maximum of six years, whereas you may find secured loans that last for 20 years or more.

You may also be able to borrow a larger amount with a secured loan. But there is more risk, as you must agree to use some form of property (usually your home) as security. If you don’t repay the loan, the loan provider can sell your security as a last resort to get their money back.

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How do long-term loans work?

You’ll normally repay a long-term loan in set monthly payments over a year or more. This can allow you to spread the cost of something big, such as home improvements or a wedding.

You’ll pay interest on a long-term loan. Interest is what companies charge you for borrowing money from them. It’s worked out as a percentage of the amount you borrow and presented as a yearly ‘interest rate’.

Are interest rates higher for long-term loans?

Interest rates are often lower for long-term loans. This can mean lower monthly payments, so you may be able to afford a long-term loan more easily than a short-term one.

However, a long-term loan with a lower interest rate isn’t necessarily cheaper than a short-term loan with a higher interest rate. This is because interest rates are presented yearly, which means the longer you have the loan, the more interest you’ll pay overall.

Here’s an example:

How much you borrow£10,000
How long you have to repay it (the ‘loan term’)1 year5 year
Interest rate (calculated annually)10%5%
How much you pay each month£877.16£188.20
Total amount of interest you’ll pay£525.87£1,292.24

As you can see, you’d pay less each month with the long-term loan. But you’d pay more interest on the long-term loan overall, even though it has a lower interest rate.

What are the advantages and disadvantages of a long-term loan?

It’s important to understand the pros and cons of long-term loans. They aren’t for everyone and you should consider your unique needs and financial situation before applying for one. Here are common advantages and disadvantages of long-term loans:


You’ll typically have smaller monthly payments with a long-term loan than if you borrowed the same amount with a short-term loan. This means that a long-term loan can be more affordable. You may be able to borrow a larger amount than you could with a short-term loan, without ruining your budget or risking a missed payment.

Here’s why long-term loans usually have smaller monthly payments:

  • You’re spreading out the cost. The longer you have to pay off a loan, the smaller your monthly payments will be. This is because the total amount you borrowed can be divided up into a greater number of instalments.
  • Long-term loans often have lower interest rates. This helps keep your monthly payments down. Just remember, a low interest rate doesn’t necessarily mean the loan is cheaper overall (see our explanation above).


Some common disadvantages of a long-term loan include:

  • It may be more expensive overall. You’ll pay interest for longer, so a long-term loan can end up being costly even if the interest rate seems low.
  • It may not suit your financial situation in the future. If your income goes up, you may want to pay the loan off faster so you don’t have to pay as much interest – but you’ll often be charged an early repayment fee to do this. If your income goes down, you may not be able to afford the monthly payments anymore. This can put you at risk of missing payments, damaging your credit score, and getting hit with late-payment fees or legal action.

Should I get a long-term loan for debt consolidation?

Debt consolidation means grouping your debts under one account. It works by taking out a new loan (or another form of credit) and using it to pay off your existing credit accounts. Your debt won’t go away, but it will be all in one place.

A long-term debt consolidation loan may help you manage your debt by simplifying the repayments and reducing how much you pay each month. But there are risks involved. For example, you may be tempted to use the new loan to rack up more debt. Also, applying for a new loan will temporarily lower your credit score.

If you’re struggling with debt, it’s a good idea to talk to a debt charity such as StepChange or National Debtline for free advice.

How can I get a long-term loan with bad credit?

You may be able to get a long-term loan even if you have a credit report that’s less than spotless, or little to no credit history.

‘Bad credit’ loans are designed for people with low credit scores. You may have to settle for a smaller amount and a higher interest rate, as this helps the loan provider manage the risk of lending to you.

You could also look at getting a secured loan. This involves more risk for you, as you’ll have to agree to use your home as security. But it helps lower the risk for the loan provider, meaning they may be more likely to accept you.

Getting a guarantor is another way of lowering the risk for the provider and potentially increasing your chances of approval. A guarantor is someone – usually a parent or partner – who agrees to pay off your debt if you can’t. This is a big commitment for someone to make, so they should understand the risks before agreeing to it.

How do I apply for a long-term loan?

You can usually apply for a long-term loan online or at one of the providers’ branches. Make sure you have important information and paperwork to hand, such as your bank details and ID.

You can compare loans with Experian for free and it won’t affect your credit score. We also take the guesswork out of applying for a long-term personal loan by showing you your chances of being accepted.

Remember, we’re a credit broker, not a lender. In other words, we don’t provide credit, but we can help you find credit offers.

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