Many people are considering personal loans due to the economic uncertainty in the country. However, if you need a loan to cover your current expenses, you should pay attention to the total cost of the loan and how long the loan term is. The loan length refers to how long you have to repay it. In general, personal loans are in fixed monthly payments, but the exact time you take to pay off the loan depends on you. In addition, personal loans have a range of terms, which affect the amount of your monthly payment and the amount you pay in interest over the loan’s lifetime. Here’s what you need to know to pick a loan term right for you.
Choosing a Personal Loan Term Length
The term length of a personal loan refers to the amount of time it will take you to repay the loan. There are personal loans with terms ranging from 12 to 60 months, and sometimes even longer. Lower monthly payments are associated with longer-term but higher interest costs. Therefore, you should keep your loan costs down by selecting the shortest term possible while still keeping your monthly payments manageable. Term length isn’t the only factor when applying for a personal loan. Here are some other things to consider:
- Interest rate: An annual percentage rate (APR) is the interest rate of a personal loan; it also includes fees and other costs. In other words, a higher APR means that the loan will cost you more, so you should go for the lowest interest rate you can find. Online lenders typically publish interest rates for personal loans, so comparing various sites is easy.
- Fees: When lenders issue personal loans, they typically charge fees in addition to interest. Depending on the setting, either they will be added to your loan balance or deducted from what you receive; the prices will be in the APR.
- Funding time: How quickly will you be able to obtain your funds once approved for a loan? It depends on several factors. Payouts from online lenders usually occur quickly, with some offering same-day deposits. Loan applications and disbursement take longer with banks and credit unions so you may wait a few weeks.
- Extras: Find out what special incentives or other ways you can lower your interest rate or fees your lender may offer. You can get a discount from lenders if you apply online or set up automatic payments. Others can reduce your interest rate if your credit score increases or you make on-time payments for a set period.
The length of your loan can affect how much you pay each month and how much interest you’ll pay overall over the term. It would be best to remember this. However, that term length isn’t the only factor to consider when comparing personal loans. You can also choose your lender based on your debt-to-income ratio, credit score, and how much you want to borrow. Therefore, if you’re considering a personal loan, you should check your credit score and improve it. It will help you get the loan you need and help you get the best loan terms.