A long term loan is an unsecured or secured loan product that has a repayment schedule for one to ten years or more. For financing real estate, loans for 20 to 30 years are common. Frequently, long term loans have stricter requirements for approval, and borrowers need to show proof of income, employment, and credit rating. There are also long term loans available for people with bad credit.
Unsecured personal long term loans for 1,000 to 25,000 pounds or more may have a one to seven year repayment schedule. The interest rate as well as the monthly payment is fixed for the period of the loan. The interest rate may be higher for an unsecured loan and will also depend on the credit rating of the borrower. Usually, lenders charge a higher interest rate if the amount borrowed is low.
An unsecured long term loan is a good idea to pay for a new car or to pay for a holiday. Borrowers should always check if there are any early repayment fees for paying the loan off earlier than the term. If the fees are larger than the amount of interest left on the loan repayment, it is not worth repaying early. If the payments are not regularly made, the borrower could end in court with big legal bills even though their house or car is not at risk as security for the loan.
Secured long term loans use a house or car as security to the lender for the loan. A secured loan usually has a lower interest rate. For a secured loan, the borrower needs to be sure they can make every repayment on time, or they may lose their house or car.
A secured long term loan is a useful product if the borrower has a low credit rating and cannot get an unsecured loan. This type of loan is not recommended for a one time purchase such as a washing machine or car. By the time the loan is repaid, the car may be sold and the washing machine may be scrap.
Long term payday loans are not usually recommended. Pay day loans are a useful product for borrowers who need cash fast and will repay it quickly. The interest is very high, so the loan needs to be repaid fast to keep the cost down. A long term pay day loan may only be for one year, but it could cost double or more the amount borrowed.
Long term loans with low interest rates may be deceptive. There are often hidden costs and fees included in the repayments. Borrowers need to be sure of the conditions before they choose any loan. The general rule is to borrow as little as possible for as short a time as possible. At a seven per cent interest rate, borrowing 10,000 pounds for three years will cost 1,100 pounds interest. The same amount borrowed for ten years at seven per cent will cost 3,900 pounds interest.
Most secured loans have a variable interest rate. This means the lender can raise payments as the UK interest rates fluctuate or as the lender chooses. An unsecured personal loan is at a fixed rate, so the borrower will know and be able to budget exactly what they need to repay each month. Long term secured loans sound good with one low monthly payment, but they can be much more expensive in the long run.
For those who chose a long term loan with their house or car as security, it may be a good idea to have payment protection insurance (PPI). This will make the repayments for 12 to 24 months if the borrower is not able to do so for any reason. They may be in an accident or have an illness and unable to work for their monthly income, or they may lose their job.
This type of insurance should not be bought from the lender. It is a good idea to get professional financial advice before buying PPI, because many of these policies have been mis-sold to consumers. If the borrower’s place of employment gives long term sick pay, PPI may not be necessary. It is also important to know the details of a PPI policy to see what it does not cover.