Personal Loan Term Length 2023: Tips for Getting the Best Deal

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Updated: May 11, 2023
author photo Written by Louis BakerUpdated: May 11, 2023
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Personal Loan Term Length 2023: Tips for Getting the Best Deal

Choosing the proper term length can help you manage your budget and repay your loan on time. But what exactly is a personal loan term length, and how long should you choose?

This term length establishes the period within which you are required to make payments, including both the principal and interest for your loan. The most crucial aspects of various loan term lengths can significantly influence the payment amount and the total interest cost.

In this article, we will elucidate everything you need to know. This knowledge can help you steer clear of unfavorable loans and select the best option. Let’s dive in!

About Personal Loan Term Lengths

A personal loan term refers to the time you have to repay the loan, including both the principal and interest. Depending on the lender and your financial situation, there are short-term or long-term.

Generally, personal loans are structured to be repaid within a relatively short time frame, ranging from 12 to 60 months.

Nonetheless, certain lenders may provide the option for longer terms, extending up to 7 years. A prime example of a long-term personal loan is a debt consolidation loan. The following is a brief comparison of the two loan term categories:

Type Features Pros Cons
Short-Term Personal Loans
  • Repayment period of 1-3 years
  • Lower total costs
  • Faster payoffs
  • Minimizes interest charges
  • Helps pay off debt quickly and affordably
  • Higher monthly payments due to shorter repayment period
  • May not offer enough time to repay large loans
Long-Term Personal Loans
  • Repayment period of 3-7 years
  • Lower monthly payments
  • Enable you to borrow a larger amount
  • Makes larger loans more manageable
  • Offers more flexibility in monthly payments
  • Higher total borrowing costs due to longer repayment period
  • Higher interest rates than short-term loans
  • May require collateral or a higher credit score to qualify for lower interest rates

Major Factors You Should Compare Among Personal Loans

When choosing a personal loan term, there are several factors that borrowers should keep in mind. Here are some of the most important factors to consider:

    1. Interest rate and fees

The interest rate is one of the most critical factors to consider when choosing a personal loan.

The interest rate is the most crucial factor determining your overall financial cost for any type of loan and a personal, of course! Securing a lower interest rate will place you in a better financial condition.

The interest rate is usually shown as an annual percentage rate (APR), which includes fees and other costs in addition to interest.According to a Bankrate study, the average personal loan interest rate is 10.81 percent as of Mar. 15, 2023.

Other than the interest cost, paying attention to any processing fees and penalties associated with the loan is important. The most common types in the real financial world are origination fees, repayment penalties, and late fees, which can rapidly increase the total cost of the loan if you ignore them.

    2. The trade between today and tomorrow

Everyone has different financial situations and unique loan requirements. As a result, borrowers may have different perspectives and opt for a higher interest rate in exchange for lower monthly payments.

There is no one correct answer regarding this decision, but it's important to have a clear understanding of your financial situation and repayment ability. It's especially crucial to not rely solely on the current payment amount and to calculate the total cost of the loan.

"A personal loan needs to benefit you not just in the short term but also long term," says Ryne Vickery, a certified financial planner at Buckingham Strategic Wealth.

You can subtract their expenses over a set period, such as a month, from the funds they took in over that period to see their cash flow. This can help you choose a term length that makes sense for your current and future cash flows.

    3. Understand your monthly repayment ability.

Considering the monthly payment's affordability for your financial and personal situation is essential. A lower monthly payment option may look charming, but it comes out with consequences like many other things. This offer might result in a higher interest cost and increase your total borrowing cost.

Let's say you need to borrow $5,000 to pay for a home repair project. You are considering two loan options:

Option 1: 60-month loan at 10% with a monthly payment of $106

Total payments = $6,360

Total interest = $1,360

Option 2: 24-month loan at 8% with a monthly payment of $215

Total payments = $5,160

Total interest = $160

As you can see, while the monthly payment for option 1 is lower, the longer loan term results in a higher total cost of borrowing due to the additional interest charges.

As demonstrated, you will be better off choosing option 2, despite a higher monthly payment. However, this option can save you more than a thousand dollars in total interest and allow you to pay off the debt in two years.

    4. Shop for the best rates by researching lenders.

To maximize savings, borrowers should shop for the lowest interest costs for any personal loan term length.

Many lenders allow borrowers to see an estimated interest rate with a soft credit check or simply insert their credit score, making it easy to prequalify and compare APRs from multiple lenders. Many banks now allow you to track your credit score on the App. There are also third-party companies like Credit Karma that provide credit scores for free.

Personal loans typically have lower interest rates than credit cards, and it pays to compare rates from different lenders.

According to the Federal Reserve Bank, the average annual percentage rate for a 24-month personal loan was 11.21% in November 2022, compared to 20.35% for credit cards today.

    5. Funding time

The time it takes to issue a loan also matters, especially if you need the money urgently. Different lenders have varying processing times for loan applications. Sometimes you can receive funds within 24 hours of your application's approval, while other times, you have to wait days or weeks.

    6. Additional factors you need to consider

In addition to what was mentioned above, you should also consider the additional features or benefits offered by the lender, such as online App &Banking, locations, flexible repayment options, no penalties for early repayment, rewards programs, etc.

For example, some lenders will discount you for applying online or setting up automatic payments. Others will reduce your interest rate if your credit score rises or if you make on-time payments for a certain period.

Short-term vs. Long-term Personal Loans: Which One to Choose?

If you're considering taking out a personal loan, you may wonder whether a short-term or long-term loan is the better option. While there is no one-size-fits-all answer, there are certain scenarios where each loan term might make more sense.

Short-term personal loans may be a good option if:

  • You only need to borrow a small amount of money quickly.
  • You can handle a higher monthly payment.
  • You want to minimize total borrowing costs.
  • A quick payoff: Your income flow allows you to pay off the debt within a short period, and you want to save the borrowing cost compared to a long-term personal loan.

Long-term personal loans may be a good option if:

  • You need to borrow a larger amount.
  • Too much pressure on a high monthly payment. A long-term loan can make your monthly payments more affordable.
  • You're not as concerned with total borrowing costs and are willing to pay more interest over time.
  • You want payment flexibility. If you have a lower monthly payment, you can still pay more than the minimum when you have extra funds.

Evaluate the Interest Rate, Monthly Payment, and Total Cost.

Before applying for a personal loan, knowing how much you can afford to borrow and how much you'll pay in interest charges is essential. Here are some steps to help you see an estimated interest rate and calculate your payments and total interest:

Check your credit score:

The credit score is one of the most important factors because it provides a broad picture of a person's creditworthiness and repayment ability. This score can impact a lender's decisions, from the interest rate offered to the approval of a loan application. Check your credit score, report for errors, and take steps to improve your score if necessary.

Shop around for lenders:

Research several lenders and compare their interest rates, fees, and other terms.

Many lenders offer a prequalification process that allows you to see an estimated interest rate without conducting a hard or soft credit check.

Use a personal loan calculator:

A personal loan calculator can help you see how different loan terms and interest rates affect your monthly payments and total interest charges. You can enter the loan amount, interest rate, and repayment term to see the total cost of the loan.

Consider your budget:

When calculating your payments, consider your budget and other financial obligations. Make sure that the monthly payment is under your budget plan, or it might become a serious problem, causing late fees or a default on loan.

How to Get a Personal Loan

Personal loans can be obtained from various sources, including banks, credit unions, and online lenders. Here are some key differences to consider when considering each option:

Traditional Banks:

Many traditional banks, such as Bank of America, offer personal loans. These loans may come with fixed or variable interest rates, and repayment terms typically range from one to seven years. Some banks may require collateral to secure the loan.

Credit unions:

Credit unions are not-for-profit organizations that take responsibility for their shareholders and members. They offer competitive interest rates and flexible repayment terms. They also accept less-than-perfect credit applicants but generally serve their members only. Remember that you'll need to join a credit union before you can apply for a loan, which usually involves opening an account and depositing a minimum amount of money.

Online lenders:

Online lenders, such as SoFi and LendingClub, offer personal loans with a quick and easy application process. These loans may come with competitive interest rates and repayment terms that range from one to seven years.

Online lenders usually don't have physical branches, which allows them to cut down the operating cost and offer lower interest rates than banks or credit unions.

Some online lenders specialize in lending to people with poor credit.

What Credit Score Do You Need to Get a Personal Loan?

A higher credit score normally means lower interest rates and higher approval chances, and vice versa. However, the lenders don’t have the same fixed requirements for the approval of the applicants. Generally, a credit score of 670 and above is considered a solid score for loan approval.

Getting a personal loan is feasible if you have a low credit score. But you may have to pay a higher interest rate or provide collateral to secure the loan. Additionally, some lenders may require a co-signer with good credit to help you qualify for a loan.

Other Things That Lenders Will Consider:

In addition to your credit score and credit history, lenders will assess your financial responsibility based on the following factors:

Income: This shows your ability to repay the loan. Generally, the higher your income, the more likely you will be approved for a loan.

Employment history: Job stability and ability can tell if you can maintain a consistent income.

Debt-to-income ratio: Lenders may look at your debt-to-income balance, the amount of debt you have compared to your income. A high debt-to-income ratio might give lenders a negative feeling about your repayment ability.

Savings and assets: Lenders may also consider your savings and assets to determine your overall financial stability and ability to repay the loan.

Credit Utilization: This is the total amount of credit you use at a certain point compared to your total credit limit.

A high credit utilization ratio may indicate that you rely too heavily on credit and need help to repay a new loan. Generally speaking, a 30% or less ratio is considered healthy and positively impacts your credit score.

Some Things You Can Do to Improve Your Credit Score:

If you're worried that your credit score will prevent you from getting a personal loan, here are some things you can do to improve your credit score:

Pay your bills on time.

This is the most critical factor that impacts your credit score. Late payments can directly hurt your credit score, so pay your bills on or before their due dates.

Keep your credit utilization ratio below 30%.

As stated above, you can maintain a safe and healthy credit situation if you keep the credit utilization ratio under 30%. Once you exceed the 30% limit, it may negatively impact your credit score and result in a decrease.

Don’t apply for new credit cards:

Every time you apply for a new credit card, it can lower your credit score slightly. Try to avoid applying for new credit cards unless you need them.

Keep old credit accounts open, even if you aren't using them:

The old accounts can help improve the average age of your credit accounts and boost your score. Therefore, keep old credit accounts open even if you're not using them.


As you read this sentence, I believe you should understand the length of the personal loan term. In addition, we have discussed choosing a loan that best fits your needs based on the interest rate, monthly payment, and other helpful information about the determination method and calculation.

In both short-term and long-term personal loans, there are a few trustworthy lenders in the market that you may want to consider.

Always put yourself in the most comfortable position by knowing the paper you are trying to sign. No universal answers tell you whether to choose a short-term or long-term loan, but the key is to evaluate your financial status and make a well-informed decision based on that. Planning and taking action will help you reach your financial goals eventually!

author photo

Written by

Louis Baker


Louis Baker started his career in 2017 by contracting with Experian. He also became a part-time content creator in various fields such as insurance, personal finance & investment, etc.

Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own.
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