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Is a long term loan right for me?

A long term loan is a big commitment, and depending on the lender you could end up repaying a lot more than you borrowed in the first place so it's a decision that you need to think about carefully. Only you can decide if finance is the right option but there's a few factors that might help you make up your mind.

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Understand what you're borrowing

Long term loan companies can often make the finance sound confusing with a whole host of technical lingo which could leave you feeling lost.

If you're not exactly sure why the APR is so important or how to check whether a lender is authorised, you might want to take a look at this guide to cutting through the financial jargon for long term loans. Before you can even begin to consider borrowing money, it's vital that you understand exactly what you're signing up for. You can only do this if you have a good understanding of all the main elements set out in the agreement.

Affordability

When you're trying to decide whether cash long term loans are the right product for your circumstances, affordability should be one of the main factors you consider. Although you might be desperate to borrow money to cover an important cost, if you can't afford to repay the instalments you could end up in even more difficulties. This is particularly important if you're applying for a secured loan; if you default on your repayments you could lose the asset you put forward as collateral.

A long term loans calculator could help you work out the monthly repayments and find a structure which won't stretch your budget too far. However, to make sure you're getting the best possible deal you'll need to look round the market. In order to compare long term loans, the APR figure is the one you need as this allows you to look at different terms and values and instantly understand which one offers the most competitive rate.

Reason for the loan

There's lots of different reasons to borrow money, but not all of them are suitable for a long term personal loan. When you choose to take out finance over an extended period of time, it's easy to get caught up in the initial excitement but it's a long commitment and the burden of repaying the money can soon start to take its toll.

It's therefore a good idea to make sure that the debt is one that you want to be saddled with for some time, and isn't a short term expense which would be better paid off more quickly. A bridging loan is the perfect example of this; a need for finance which arises as a result of a gap in cash flow, such as when arranging a mortgage for example. This type of loan bridges the gap until the main borrowing becomes available, thus making it best suited to short term loans only.

By contrast there's many reasons why a long term loan would be more appropriate. Examples of this could include a wedding, a car purchase or even debt consolidation. The latter is a type of loan that brings all other debts together and combines them into a single loan which is easier to manage and typically cheaper as well.

Assess your circumstances

Even if you've done an affordability check and are comfortable that you'll be able to meet the repayments, you need to be realistic with yourself about whether things are likely to change. Not being able to afford a long term loan will seriously affect your credit rating so you should consider whether it's not just affordable now, but likely to remain so in the future too.

For example, if you're planning on changing jobs, going back to university or even considering starting a family soon, it might be helpful to work out whether you could still afford the repayments when your circumstances change. A long term loan is a big commitment for an extended period of time, and while you may not have a crystal ball, you should take any known changes in your circumstances into account.

Is the term of the loan right?

A long term personal loan is exactly what it says: a debt that will be repaid over an extended period of time. While it may be tempting to stretch the debt out for as long as possible to keep the monthly repayments low, you should consider whether the term matches the purpose.

For example, a long term car loan might be taken out over five years, or possibly even longer. However, if you're only planning on keeping your car for three years you could end up paying back a loan for a vehicle you no longer own, or else face paying hefty early redemption fees. Try to find a balance between the purpose of your loan and the term or else you'll feel resentful paying for something which you no longer have the benefit of.

Improve the deal

If you have a bad credit history, you might find it difficult to get a long term loan or even if you do, you'll have to pay much more. Long term loans for bad credit are expensive compared to others, so you'll end up repaying a much higher sum, both monthly and overall too.

If it's not imperative that you take out the finance now, you might want to postpone your long term loan bad credit application. Set this aside and spend some time rebuilding your credit rating. You can do this by:

  • making sure you're on the electoral roll
  • clearing any overdue debts
  • paying instalments when due
  • get rid of any unused credit cards or mobile phone contracts
  • if you don't have any lines of credit, take out a credit card and repay it in full each month. Having no credit will impact your rating negatively and won't give you any opportunities to build up your score
  • don't max out any of your credit cards or accounts; try to keep balances low so it doesn't appear that you're financially stretched.

Once you've spent some time improving your credit rating and demonstrating that you are financially stable, you can consider applying for your loan, and you could get a much better deal.

The choice is yours

Only you can decide whether a long term loan is right for you, but it's essential not to just plunge in without giving the matter some serious thought. If you do decide to go ahead, check out our handy guide to the do's and don'ts of taking out a long term loan.

If you are undecided on what lender to take your loan with, we have a great article here on what to look for in a lender.

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