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Pros and Cons of Long-Term Personal Loans

By Jamie Cattanach · August 16, 2021 · 6 minute read

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Pros and Cons of Long-Term Personal Loans

Long-term personal loans can be an attractive option if you’re facing large expenses like medical bills or home repairs. By spreading out repayment over a longer period of time, long-term loans may allow for lower monthly payment amounts that can make major costs more affordable.

However, long-term loans can have drawbacks, too. Although the figure on the monthly bill might be lower, long-term loans may have higher cumulative interest than short-term loan.

Furthermore, long-term personal loans can be difficult to qualify for since they’re often unsecured — not tied to physical collateral like a home or a car.

Here’s what you need to know if you’re deciding whether or not a long-term, unsecured personal loan is right for you:

What is a Long-Term Loan?

As its name suggests, a long-term loan is one whose repayment period, or term, is fairly lengthy. Generally, long-term personal loans carry terms between 60 and 84 months, or five to seven years.

Mortgages and student loans are also examples of long-term loans. Mortgages, for instance, are frequently repaid over as many as 30 years.

For the purposes of this article, we’re talking about long-term, unsecured personal loans, which borrowers can use for a variety of things, rather than using the funds specifically to pay for an education, a car, or a house.

Long-term, unsecured personal loans can allow consumers to make big purchases or pay expensive bills by paying the total off over several years’ time.

Benefits of Long-Term Personal Loans

There are plenty of reasons a long-term loan might be a worthy consideration for large expenses.

Large Loan Amounts

While short-term loans and credit cards may cap out at a few thousand dollars, long-term, unsecured personal loans are available at much higher amounts — up to as much as $100,000.

So depending on what you need the money for, a long-term personal loan might give you more leverage than other types of funding.


Unlike secured loans, which are tied to a physical piece of collateral or the need to be used for a specified purpose, unsecured personal loans can be taken out for a wide range of intended purposes. Common reasons borrowers take out personal loans include:

• Home renovations or repairs.

• Medical expenses.

Wedding loans or funeral expenses.

Debt consolidation.

Affordable Monthly Payments

Since long-term personal loans are paid off over many months, the monthly payments are often lower than they would be with a shorter-term loan.

However, that doesn’t mean a long-term loan is less expensive in the long run.

Drawbacks of Long-Term Personal Loans

There are also some drawbacks worth considering before you apply for an unsecured personal loan.

Potentially Higher Interest Rates

Although long-term, unsecured personal loans may have smaller monthly payments, they may carry higher interest rates than shorter-term, unsecured personal loans — and even at the same interest rate, they cost more over time.

Personal loan rates can range from as little as 5.99% to as much as 36% APR.

For example, imagine you take out a $10,000 loan at an interest rate of 10%. To repay the loan in a single year, you’d have to pay a whopping $879 per month, but you’d only pay a total of $550 in interest over the lifetime of the loan.

To repay the loan in seven years, you’d pay only $166 per month, but you’d also pay $3,945 in interest along the way.

So while long-term, unsecured personal loans can make large purchases feasible, factoring in the total cost over the lifetime of the loan before you sign those papers is also important.

Long-Term Debt

Along with higher interest rates, long-term loans do, obviously, mean going into debt for a longer period of time — unless you plan to pay off your loan early. A thorough review of the loan agreement will disclose prepayment penalties or other fees that can be costly in their own right.

Furthermore, the future is unpredictable. Five to seven years down the line, that promotion you were counting on might fall through or another life circumstance might supersede your repayment plans, early or otherwise.

If you find yourself in a situation where you need to borrow more cash, it can be difficult to increase your personal loan amount.

Although unsecured personal loans can be helpful when life throws big expenses your way, they’re still a form of consumer debt, and, ideally, minimizing debt is a smart thing to do.

Qualification Difficulties

Long-term, unsecured personal loans may have more stringent qualification requirements than other types of credit because, from the lender’s perspective, they’re riskier than those for smaller amounts or those that come attached to physical collateral.

Along with your credit score and history, a potential lender might also require proof of income and employment or a certain debt-to-income ratio. Depending on the stability of your financial situation, you may or may not qualify for the best interest rates and terms or be considered eligible to take out the loan at all, at least without a cosigner or co-borrower.

Recommended: Getting a Personal Loan with a Co-Applicant

Alternatives to Long-Term Loans

Ideally, the best way to pay for a large purchase is to save up the cash and pay for it without going into debt at all. Of course, this may not always be possible or realistic.

If you’re not sure about taking out a long-term, unsecured personal loan, there are other alternatives to consider. However, each of these comes with its own risk-to-reward ratio, as well.

You might consider borrowing money from friends and family, but those important relationships can suffer if your repayment doesn’t go as planned. A written repayment agreement can go a long way toward making the transaction as transparent as possible, with expectations of both parties clearly outlined.

Another option might be saving part of the money you need and applying for a short-term, unsecured personal loan for the remainder.

This means delaying a purchase until savings can accumulate, and might not work if the money is needed sooner rather than later.

The Takeaway

Long-term loans are those whose repayment periods generally span between five and seven years, which can help borrowers fund expensive purchases while making affordable monthly payments.

However, the longer-term can also mean more interest charges over time, making these unsecured personal loans more expensive relative to shorter-term lending options. And like any form of consumer debt, they carry risk.

Your credit score and/or personal financial situation can suffer if you find yourself unable to repay the loan.

That said, when used responsibly, long-term, unsecured personal loans can be a smart financial choice, particularly if you shop around for a lender who offers affordable, fixed interest rates, low fees, and great customer service to ensure you’ll always be in the know and in control.

Want to learn more about SoFi’s low-rate, fee-free, long-term personal loans? Check them out today.

Photo credit: iStock/Melpomenem

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