When taking out a personal loan, one of the most important decisions you’ll need to make is choosing the right loan term. How long you borrow the loan for can impact your monthly payments, the total interest you’ll pay, and how quickly you become debt-free. However, finding the ideal loan term isn’t always straightforward, as it’s influenced by various factors. This includes your financial situation, how much you’re borrowing and your long term financial goals.

Let’s take a look at the key factors to consider when determining the best length of time for your personal loan, including what are good terms for a personal loan, to help you make an informed choice that fits your needs.

What is the average duration of a personal loan?

It depends on the type of loan you apply for. Short term loans typically last for anywhere from a few weeks or months to several years, while a longer term loan may last for around 5 to 7 years. The maximum loan term that lenders offer through LoanBird is 36 months.

The exact duration of online loans typically depends on your personal and financial circumstances and the borrower’s financial situation. Your credit score may influence the loan term that you are offered by a lender, although it doesn’t necessarily matter if you have a poor credit history as we work with lenders who offer small loans for bad credit.

Short term vs Long Term Loans

Each type has its own benefits and drawbacks depending on your financial situation, goals, and how much flexibility you need.

Short term loans typically have higher monthly payments, but lower total interest paid over the life of the loan. Longer term loans usually have lower monthly payments, but you’ll end up paying more in interest over time.

Shorter loan terms mean you’ll pay off the principal faster, so the overall interest you pay will be lower. You’ll also pay off your debt more quickly, which allows you to become debt-free sooner, while having the short term funds to cover emergency costs and the funds to consolidate debts.

One of the downsides of short term instalment loans is higher monthly repayments, as repaying the loan in a shorter period, which means your monthly payments will be higher, which could strain your budget. This could put a strain on your budget, unless you’re fully prepared for it. Some lenders also have stricter requirements for short term loans, largely due to the high monthly repayments, which aren’t suitable for everyone.

Total Cost of the Loan

When selecting a loan, it’s important to understand the total cost, as it goes beyond just the monthly payment. The loan fees include interest and administration fees, along with potential additional costs such as early repayment fees. You may also face charges such as late or missed penalties if you miss a repayment or pay an instalment late.

The interest rate is typically a percentage of the loan’s total amount, so the higher the interest, the more you’ll need to repay on top of your initial loan. While a longer term loan may come with lower monthly payments, it can result in paying more interest over time. Short term loans typically cost less in total interest but have higher monthly payments.

Some lenders offer loans with flexible repayment options that can affect the total cost. For example, if the lender offers the ability to make extra payments without penalties, it can help reduce the total interest you pay over time.

Your Financial Stability

Lenders will consider your financial background when determining if and how much they can loan you. If you have a stable, high income, you may be able to afford a shorter loan term with higher monthly payments, which will reduce the total interest you paid. However, if your income is unstable, it might be better to opt for a longer loan term with lower monthly payments as this can provide financial flexibility and reduce your risk of missing payments.

Having a low debt-to-income ratio and manageable expenses will likely mean you can handle higher monthly payments and a short term repayment period, which enables you to pay the loan off faster. If you would struggle to fit higher monthly payments into your budget, it may be better to have a longer term loan with lower repayments. It’s important to establish your budget capabilities before you apply for a loan, as missing or being late with repayments can affect your credit score and could lead to penalty fees.

You should also consider your future financial plans. If you plan to buy a house, start a business, or invest, a shorter loan term can help you clear debt quickly, which will improve your creditworthiness.

How long should a personal loan repayment period be?

The best length for a personal loan depends on your unique personal and financial circumstances. If you have a stable income, a short term loan may be a good option, whereas an unstable income may mean you can’t meet the monthly repayments. While short term loans typically have higher interest rates, you pay them back much faster than long term loans and therefore may pass less interest overall.

If you’re looking for a short term loan, LoanBird can help. We work with a panel of lenders who offer affordable loans ranging from £100 to £5,000. You can use our simple online form to apply, and we’ll help you find the best length for a personal loan based on your financial and personal circumstances.

Contact us if you have any questions about the loan application process or queries about your existing loans. Our friendly team are on hand to help you find the best length for a personal loan. We’ll assess your personal and financial circumstances to help you find good terms for a personal loan so that you can cover your urgent expenses.