If you need cash to fund a major purchase or project, give you working capital for your business, or consolidate several short-term loans into one, a long-term personal loan is a financing option to consider. Although the interest rates and repayment periods available differ among lenders, long term loans allow you to borrow a larger amount of cash and pay it back over a longer period of time. In addition to a longer repayment period, a long-term personal loan offers several additional advantages.
Lower Interest Rate
A long-term personal loan generally offers a lower interest rate than a short-term loan or credit card providing you have a good credit score and a healthy repayment history. You can also save money with a lower interest rate if you use the money from a personal loan to pay off higher-interest credit accounts.
Normally, you can choose from fixed or variable interest rates. A fixed rate offers consistent monthly payments, which can make it easier to manage your budget. However, you may pay a higher rate of interest for an unsecured long-term personal loan than a loan you secure with collateral.
Smaller Monthly Payments
A smaller monthly payment leaves you with more cash for the month. While the loan terms that lenders offer vary, the length of the repayment period usually is based on the amount you borrow. A long-term personal loan can give you the time you need to pay off a larger loan, but with a monthly payment you can afford.
Keep in mind though that with a longer repayment period, you pay back more money over the term of the loan. That's because you'll be paying more in total interest costs.
Higher Credit Score
A personal loan can help build your credit and qualify you for additional financing in the future. Like other installment loans, a long-term personal loan improves your credit score by adding an account type to your credit report.
Another significant factor that goes into calculating your credit score is paying your bills on time each month. In fact, timely payments account for about 35 percent of your credit score. Since the bank or credit union that gives you the loan will report your payment history to the major credit-reporting agencies on a monthly basis, making all your loan payments on time can give your credit score a real boost.
A long-term personal loan can raise your credit score in other ways too. The length of your credit history is another component of your credit score that helps establish you as a good credit risk. Therefore, any type of credit