If you're in need of long term finance solution, then a long term loan could be the right option for you. They are typically paid off over period of a year or longer, whereas short term loans usually have a repayment period of less than 12 months.
As well as this, they are not restricted to those with clean credit records. Some lenders do provide long term loans for bad credit, however, it's important to use a soft credit search tool to ensure your searches don't tarnish your credit history.
Spreading the cost of your loan over several years offers a more convenient finance solution, however, this usually comes at a higher cost. The longer the repayment period, the more interest you'll have to pay, that's why it's essential to shop around and ensure you're getting the best deal.
Read on to discover our top tips to help you secure the best long term loan deal.
Could Budgeting Be The Answer?
Before you start searching for the best loan, it's crucial to assess whether you actually need the additional finances. If borrowing money is likely to worsen your situation in the long run, then it may be wise to explore other options such as budgeting.
Budgeting and cutting back in order to save money can help you to raise funds without the need for a loan. As well as this, there are a range of techniques and tools available to help you organise your finances, including:
- Envelope Budgeting – This involves deciding on a monthly budget and splitting your monthly spending into envelopes. For the rest of the month, you should only spend the allocated amount in the envelope e.g. £75 in 'groceries' envelope.
- Budgeting Apps – The best budgeting apps can help you to manage your finances and analyse your spending on-the-go.
- The 80/20 Budget – This involves allocating 20% of your income to savings and the rest can be spent as you wish.
Before you decide on borrowing, ask yourself these three questions :
- 'Do I need the money?' – If you can wait a few months to purchase the item rather than borrowing the money to buy it now, then it may not be worth taking out a loan.
- 'Is there another way I could finance this purchase?' – Saving or budgeting can be a time-consuming process, however, it means that you don't have to borrow extra funds.
- 'Can I afford to pay the money back that I'm planning to borrow?' – Failing to pay the amount owed could lead to you damaging your credit score and building up more debt.
Asking yourself these questions makes sure that you're in the right position to take out a loan.
Finding the Best Long Term Loan Deal
Think you're in the position to apply for a loan? Follow these top tips to make sure you're getting the best deal.
Utilise Soft Credit Search Tools
Searches are one of the many factors that will affect your credit score. They show up on your credit report when you apply for credit from a lender.
Making too many credit applications within a short period of time can make it look like you're desperate for funds. This will have a negative impact on your score and it will also make it more difficult for you to get a loan, as lenders may see you as 'untrustworthy'.
Instead, you can use soft credit search tools such as an eligibility checker to shop around for the best deal without tarnishing your credit history. This allows you to determine whether your loan application is likely to be accepted before you actually apply.
Credit reference agency, Experian, have their own loan eligibility checker that allows you to enter how much you would like to borrow and for how long, and the search results will tell you which offers you're likely to be accepted for without needing to apply.
Compare Your Options
Save yourself time and money by using comparison sites to compare interest rates and offers. Many sites allow you to see the lender, the interest rate and the repayment period all side by side, making it easier for you to compare your options. Money.co.uk and Money Supermarket are examples of some of the sites that let you compare both long and short term loans.
It's essential that you compare your options as the repayment period usually spans over a number of years rather than a number of months. Opting for the wrong lender can see you paying significantly higher interest fees and could potentially worsen your financial position.
Note: Be cautious of advertised 'representative rates'. This is just an example of the interest rate that you might receive when you apply for a loan. In reality, lenders use your credit history to determine how much interest to charge you, so you may receive a different rate to the one advertised. Take a look at our guide cutting through the jargon for further help
Opt for an Unsecured Loan
There are advantages and disadvantages for both secured loans and unsecured loans, however, if you're considering a long term loan, an unsecured loan may be the ideal option.
This is because secured loans are sums of money that are secured against sizeable assets such as your house, therefore, if you fail to keep up with your payments your house may get repossessed to offset the debt.
Alternatively, unsecured loans are not secured against any assets, this means that they carry less risk for you when borrowing large amounts of money over a long period of time.
Read the Fine Print
Don't apply for any long term loans without checking the fine print. This is because some lenders require that you meet specific criteria in order to receive the best rate.
Taking the time to read the terms and conditions of the loan you want to go for can prevent you from making any unnecessary loan applications, which will also help you to protect your credit score.