Personal Loans » Advice » Long-Term vs. Short-Term Personal Loans: Which One Is Better?
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Long-Term vs. Short-Term Personal Loans: Which One Is Better?

Long-term personal loans have lower monthly payments, but you'll pay much more on interest. Here's a full comparison and examples
Author: Baruch Mann (Silvermann)
Baruch Mann (Silvermann)

Writer, Contributor


Baruch Silvermann is a financial expert, experienced analyst, and founder of The Smart Investor.  Silvermann has contributed to Yahoo Finance and cited as an authoritative source in financial outlets like Forbes, Business Insider, CNBC Select, CNET, Bankrate, Fox Business, The Street, and more.
Interest Rates Last Update: April 15, 2024
The banking product interest rates, including savings, CDs, and money market, are accurate as of this date.
Author: Baruch Mann (Silvermann)
Baruch Mann (Silvermann)

Writer, Contributor


Baruch Silvermann is a financial expert, experienced analyst, and founder of The Smart Investor.  Silvermann has contributed to Yahoo Finance and cited as an authoritative source in financial outlets like Forbes, Business Insider, CNBC Select, CNET, Bankrate, Fox Business, The Street, and more.
Interest Rates Last Update: April 15, 2024

The banking product interest rates, including savings, CDs, and money market, are accurate as of this date.

You can trust the integrity of our unbiased, independent editorial staff. We may, however, receive compensation from the issuers of some products mentioned in this article. Transparency is a core value for us, see how we make money.

Table Of Content

How Long Are Personal Loan Terms?

Personal loans have terms of between 12 months and 60 months and sometimes longer.

Fixed loans are repaid in fixed monthly installments. The personal loan terms affect the monthly payment amount and the interest over the life of the loan.

As a borrower, you decide the repayment period of your personal loan. The longer the loan term, the higher the total cost of the loan.

What Are Long-Term Personal Loans?

Long-term personal loans have repayment periods of at least 60 months. Most lenders cap the terms between 5 and 7 years, but some offer as long as 144 months. Most long-term loans have higher interest rates than short-term loans.

Given that long-term personal loans have longer repayment periods, they have lower monthly payments. The lower repayment amount makes the loans more affordable.

Although long-term personal loans have lower monthly repayment, you pay more interest over the life of the loan. Sometimes, you can pay extra on the loan and a prepayment penalty if you pay off the loan early.

Long-term personal loans are most appropriate if you prefer lower monthly repayments and more flexibility.

What Are Short-Term Personal Loans?

Short-term personal loans have short repayment periods, usually between 12 and 36 months.

Personal loans are unsecured, and the application process involves a review of your income and credit. Such loans may come in smaller amounts with lower interest than long-term personal loans.

You can use short-term personal loans for different purposes, including payment of bills, home renovation, and debt consolidation. However, such loans might have some restrictions.

The term of short-term personal loans allows you to pay off your loan fast and save on interest. Also, you can repay the loan ahead of schedule without paying any prepayment penalty.

Long vs. Short-Term: How Much Interest You'll Pay?

The difference in interest is significant. Financially, it's smarter to take out shorter terms as possible, as long as you can pay off the monthly payments:

As an example, let's take a $20K loan and 12% interest:

Payoff After
Monthly Payment
Interest Paid
1 Year
2 Year
3 Year
4 Year
5 Year
6 Year
7 Year

Pros and Cons of Long-Term Personal Loans

As much as long-term loans have benefits, they also have drawbacks that may make them undesirable. You need to be aware of the pros and cons before applying. They include:

Lower monthly payments
More Interest To Pay
Large Amount
Stringent Requirements
Prepayment Penalty

Since the loans have a longer repayment period, the monthly installments are lower than short-term personal loans.

The principal amount of long-term personal loans is always larger than short-term loans.

Die to the long term, the total interest you'll pay for personal loans is higher than for short-term loans.

Sometimes, you are usually evaluated for a prepayment penalty if you choose to repay the loan early.

For you to qualify for a long-term loan, you need to have good credit. Also, it isn't easy to find a lender offering loans longer than 60 months.

Pros and Cons of Short-Term Personal Loans

Here are the pros and cons when it comes to short-term loans:

Better Interest Rate
High Monthly Repayments
Lower Interest
Lower Loan Amounts
Credit Boost
Rigid Terms

Lenders of short-term loans might offer more competitive rates than long-term loans.

A lower interest rate saves you money on interest over the life of the loan. Also, if you pay off your loan fast, it accrues little interest than on a longer term.

Short-term loans are repaid quickly. After repaying your loan, you reduce your unpaid debt, possibly improving your credit score.

Short-term personal loans are usually repaid within truncated timelines. As a result, you may have to make higher repayments than in long-term loans.

Some lenders fund personal loans of up to $100,000, but the limits on short-term loans might be lower.

It may be impossible to change the loan terms if you are experiencing difficulties in keeping up with the repayments. You can refinance, of course, with the rate may be higher and you'll pay more on interest.


Which Is Better?

The best term length for a personal loan depends on the monthly repayments and the total interest over the tenure of the loan. In this regard, a longer term is best for you if you want to make lower repayments but higher interest costs.

On the other hand, a shorter term is the best length if you are looking for a low-cost loan and manageable monthly payments.

For example, if you borrow $3,000 at a rate of 10% repayable within twelve months, your repayments will be higher, but the interest charges will be lower compared to a long-term loan. Therefore, a short-term loan is ideal if you want to pay off the loan faster and make significant savings on interest charges.

When to Consider Short-Term Loan?

There are circumstances when you can consider short-term personal loans over long-term loans, including:

  • You can repay high monthly payments. If your goal is to take a loan and repay it faster, then you can consider applying for a short-term personal loan. Also, as much as you will have higher monthly installments, you will pay less interest on your short-term loan.

You can decide to borrow a short-term loan after assessing your situation. It will help if you evaluate your financial needs and ability to make monthly repayments.

When to Consider Long-Term Loan?

In a long-term loan, the lender spreads the cost of the loan over an extended period. There are different cases when you can consider a long-term loan, including;

  • You Need Smaller Monthly Repayments. A long-term loan is ideal if you want to pay smaller monthly installments. The smaller monthly repayments can allow you to manage the loan on top of other bills.
  • You Need Flexibility: You can consider borrowing a long-term loan when you need more flexibility in repayment. For example, the cap terms range between five and twelve years, and you can choose the most appropriate repayment period.
  • You Need High Amount. Long-term loans are ideal if you need funds for major projects. You can borrow larger amounts than short-term loans. For example, you can borrow a long-term loan to finance home improvements, high-cost medical expenses, and debt consolidation.

Can I Build Credit With a Short-Term Loan?

Your credit is important in different aspects, from buying insurance to getting a loan. However, it takes time to earn high credit scores, and it is best to build your score as soon as possible.

There are different ways of building your credit, and it is important to understand how different loans work, manage your finances appropriately and monitor your credit score.

You can build credit with short-term loans. The process entails making timely repayments and monitoring improvements within the loan period.

Given that a short-term personal loan adds to your debt load, it may negatively affect your credit score if you make late or no repayments.

Most short-term loans report to credit bureaus and can help improve your credit if you make timely repayments. Moreover, if you do not default on short-term loan repayment, the loan can help fix poor credit ratings.

Which Loan Is More Accessible if I Have Bad Credit?

Short-term personal loans are more accessible if you have bad credit. Therefore, if you do not meet the minimum credit score requirements, your chances of getting approved are for short-term loans.

You have bad credit if you have a FICO score of less than 600. It is difficult to qualify for a personal loan if you have poor credit.

Different personal loans require different credit scores. Most lenders require at least 650, while others can give you a loan even with scores below 600. A good credit score starts at 670 on the FICO scale, and a score above 740 is considered excellent and can help you get the best rates.

The other factors to consider are the interest rates, loan provider, loan limits, and terms. However, you should not expect to get better rates or favorable terms if you have a poor credit score.

In this regard, the provider offering a loan your score qualifies for is the best for you. Therefore, if there are several options, it would be best to compare loan limits and interest rates to get the loan that fulfills your financial needs.

Where to Get a Personal Loan?

You can get a personal loan from your bank, credit union, or from online lender. 

Online lenders can fund your loan quicker, and the rates are usually lower than banks. 

However, if you are already in a relationship with a specific bank or credit union, you may want to check it out first, especially if your score is lower than 650.

You need to assess your needs and compare different lenders to find a lender whose products align with your financial needs.


You can get pre-approved through prescreening before you complete the loan application process. The process informs you if you are likely to be approved and the terms if the application is successful.

The pre-qualification process begins by providing basic information to a potential lender—for example, the loan amount, income level, and the debt you carry.

Yes, short-term loans go on your credit. If you take a short-term personal loan, it affects your credit. Your credit score helps lenders to decide whether to approve your loan.

A low credit score limits the possibility of being approved for a short-term loan while a high credit score increases the chances of qualifying for a loan.

The longest you can finance a personal loan is twelve years. Personal loans have different term lengths, ranging from 12 to 144 months.

A longer loan term attracts lower monthly repayments and higher interest costs over the life of the loan.

You can have some input in your loan repayment by exploring all repayment options with your lender.

Yes, you can get a personal loan for ten years regardless of the loan amount. Some lenders provide term loans of up to 144 months, especially for higher loan amounts.

Personal loans with longer loan tenure are long-term loans. Different types of loans can last for ten years, including home and education loans.

Most lenders provide deferment plans that allow you to extend your loan term for a short-term if you cannot pay your loan because of financial difficulties.

Personal loans terms last for up to 144 months and can be extended for some months. The longer-term loans may charge higher interest rates because of longer monthly repayments and lower payments.

Picture of Baruch Mann (Silvermann)

Baruch Mann (Silvermann)

Baruch Silvermann is a financial expert, experienced analyst, and founder of The Smart Investor.  Silvermann has contributed to Yahoo Finance and cited as an authoritative source in financial outlets like Forbes, Business Insider, CNBC Select, CNET, Bankrate, Fox Business, The Street, and more.
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