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Personal Loan Term Length: What You Need To Know

Don’t overlook term length for a personal loan. Here’s how to choose the best one.

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By Anna Baluch
Anna Baluch

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Written by

Anna Baluch

Freelance writer

Anna Baluch is a personal finance writer with more than six years of experience. Her work has appeared on CNN, New York Post, and U.S. News & World Report.

Edited by Meredith Mangan
Meredith Mangan

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Written by

Meredith Mangan

Senior editor

Meredith Mangan is a senior editor at Credible. She has more than 18 years of experience in finance and is an expert on personal loans.

Updated January 31, 2025

Editorial disclosure: Our goal is to give you the tools and confidence you need to improve your finances. Although we receive compensation from our partner lenders, whom we will always identify, all opinions are our own. Credible Operations, Inc. NMLS # 1681276, is referred to here as “Credible.”

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A personal loan can help you cover a car repair, medical bill, or almost any other type of expense. As you shop around for one, you should consider more than just the annual percentage rate (APR), which includes the interest rate and fees. 

The term length of your personal loan is just as important. The length will tell you how long you’ll have to make monthly payments and how much total interest you’ll pay. Find out how to choose the best personal loan term length for your unique situation.

How do personal loan terms work?

When you apply for a personal loan, you’ll have to think about your preferred loan term or how much time you’d like to repay your loan. 

While a larger loan amount usually comes with a longer loan term, a smaller personal loan might have a shorter term of one year or even less. In general, however, lenders offer repayment terms that range from a few months to multiple years. 

For example:

  • Less than 1 year: Emergency expenses, like a $500 car repair or medical bill
  • 1 to 2 years: Lower-cost expenses, such as $3,000 in furniture
  • 3 to 4 years: Mid-range expenses, like consolidating $15,000 in debt
  • 5 to 7 years: Larger expenses, such as a $30,000 kitchen renovation

Related: How Do Personal Loans Work?

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Pros and cons of short-term vs. long-term personal loans

Personal loans are usually classified as short-term loans or long-term loans. A short-term personal loan is exactly what it sounds like: a loan with a shorter repayment term. A long-term loan, on the other hand, has a longer repayment term. Each option has its own benefits and drawbacks you should be aware of. 

Short-term personal loans

A short-term personal loan usually has a repayment term of one to two years or even less. It can come in handy if you need fast cash to cover an unexpected emergency expense. 

Pros

  • Easy application: Most lenders have an online application. It usually takes a few minutes to complete. 
  • Fast funding: Short-term personal loans often offer fast funding. You may be able to get your money the day you get approved or shortly after.
  • No collateral: Typically, short-term loans are unsecured, meaning they don’t require collateral. If you default on your loan, the lender won’t take your asset.

Cons

  • High APRs: Short-term personal loans often have higher APRs. This is because they’re typically offered to those with bad credit and don’t involve collateral, which means lenders consider them a higher risk.
  • Smaller loan amounts: If you take out a short-term personal loan, you’ll likely be limited to a small amount of cash. It may not be enough to cover a larger expense.
  • Additional fees: Some lenders charge extra fees in addition to interest, like origination fees and late fees. Do the math and make sure you can afford the loan with all the fees.

Good to know: Avoid taking out payday loans (a type of emergency loan, usually for 2 weeks) as these loans tend to come with exorbitant interest rates and fees. 
 

Long-term personal loans

A long-term personal loan has a repayment term of longer than five years. These terms make sense if you need to borrow a large amount of money and want lower monthly payments.

Pros

  • Might be able to borrow more money: With a long-term personal loan, you can get approved for a larger sum of cash. This is ideal if you have a larger expense, like a home improvement project.
  • May have lower monthly payments: A long-term personal loan usually means lower monthly payments. It can be easier to fit into your budget than a short-term loan.
  • Many options: There are a variety of lenders that offer long-term personal loans. If you shop around, you should be able to find one that meets your needs.

Cons

  • Can be difficult to qualify for: Compared to a short-term loan, a long-term loan is usually harder to get. This is particularly true if you have fair or bad credit. 
  • Higher interest costs: While a long-term personal loan comes with lower monthly payments, you’ll pay more in interest. A shorter loan can keep your overall costs lower. 
  • May interfere with other financial goals: Since a long-term personal loan often takes years to repay, it can get in the way of other goals, like retirement and college savings. You’ll be in debt for longer. 

How term length affects repayment costs

When your personal loan application is approved, your lender will typically offer you several different term lengths. It's tempting to pick a loan with a longer repayment term since its monthly payments are likely lower than shorter terms.

However, the longer your repayment term, the higher your loan's APR will be (in most cases). As a result, you'll pay more interest over the life of the loan. The chart below shows the APRs and estimated interest costs of three loan terms for a $10,000 loan:

Term
Monthly payment
APR
Estimated total interest payments
Two years
$476
13.06%
$1,417
Three years
$349
15.53%
$2,573
Five years
$273
21.44%
$6,381

In this case, choosing a five-year loan would cut your monthly payment by almost half compared to a two-year term. But you could end up paying more than four times as much in interest.

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Note

The rates above are for someone with very good credit, and no origination fees are charged.

Choosing the best term length

Rates can vary for different term lengths. But a longer term usually means you’ll pay more over the life of a loan. Consider the following to help you decide on the right term length. 

  • Loan amount: Even if you’re approved for a large loan amount, it doesn’t mean you should accept it. A larger amount leads to higher payments and interest costs. Determine how long it will take you to repay your ideal loan amount over different term lengths while still being able to afford your payments. 
  • Overall cost: The overall cost of a personal loan is based on interest, fees, and term length. A personal loan calculator can help you compare the overall cost of different time periods. 
  • Payment: As you consider various different loan amounts, understand their monthly payments. A loan with a shorter term will have higher monthly payments, but you’ll pay less in interest and repay it faster. A longer-term loan means more affordable payments but higher interest charges.
  • Interest rate: In most cases, longer-term loans have lower interest rates than shorter-term loans. Remember that a lower interest rate can save you hundreds or even thousands.
  • Future changes to income or expenses: Think about how your income or expenses may change down the road. If you plan to move or have kids in the near future, for example, you may have less income at your disposal and be better off with a longer term that offers lower monthly payments or a smaller loan amount. 

Check Out: How To Compare Personal Loans

How to choose term length based on your financial goals

Finding a loan with the right repayment term is important for reaching your financial goals. Consider your goals for the next seven years, then determine which loan term best fits that plan. Here are a few examples:

One- to two-year terms

  • You want to pay off high-interest credit card debt quickly, perhaps to reduce your credit utilization and improve your credit score.
  • You plan to take out a mortgage or other large loan soon and want to reduce your debt-to-income ratio (DTI) to better qualify.

Scenario: You plan on buying a home in a couple of years and want to boost your credit score and lower your DTI by the time you're ready to buy. You have the income to cover the monthly payments of a short-term personal loan, so you refinance all your credit card debt with a debt consolidation loan. Your credit score rises because your credit utilization ratio drops. (Credit utilization accounts for up to 30% of your FICO score

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Good to know

Credit utilization refers to how much of your available credit you’ve used on revolving accounts. It’s one of the factors affecting the amounts owed category of your FICO score, which accounts for 30% of your overall score.

Three- to four-year terms

  • You don't want to pay the higher interest rate on a longer loan term but can't afford the monthly payments with a shorter loan term.
  • You're expecting to have additional expenses in three to four years that you want to free up income for.

Scenario: You've taken out a loan to help with wedding expenses and plan to start a family in four years. By the time you pay off the loan, you'll be in a better position to afford the expenses that come with that.

Five-year terms or more

  • You need a low monthly payment.
  • You want to raise your credit score through on-time payments. (Payment history accounts for 35% of your score). A longer-term loan's lower monthly payments make it easier to pay off your debt on time each month.

Scenario: You're struggling to afford your current debt payments. You're also concerned about your credit score. You can't qualify for a lower interest rate than what you're paying now, but you can qualify for a longer repayment period, which lowers your payments. You consolidate your debt and make on-time payments for two years. Once your credit has improved, you refinance the loan at a lower interest rate with a short repayment period and a similar monthly payment.

FAQ

Can I change the term length of my personal loan after approval?

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Is it possible to refinance a personal loan to adjust the term length?

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How do term lengths for personal loans compare to term lengths for other types of loans?

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Read More:

Meet the expert:
Anna Baluch
Anna Baluch

LinkedIn

Anna Baluch is a personal finance writer with more than six years of experience. Her work has appeared on CNN, New York Post, and U.S. News & World Report.