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Tips to Help You Choose the Best Loan Term Length 

Tips to Help You Choose the Best Loan Term Length


Choosing the right loan term length can make a huge difference in your monthly repayments and its impact on your budgeting. Longer loan terms can also mean higher interest rates, which would mean an even bigger overall cost. If you are in the market, or looking for a loan, you will need to balance what you can afford to pay per month with the overall cost of the loan.

There are several things you need to keep in mind to make sure you choose the best loan term length.

What’s a loan term?

A loan term is the period over which you repay the total debt. The terms vary depending on the type of loan and the amount. Here are three common loans and how long and their average terms:

  • Personal loans: Can vary from 12 months to 60 months
  • Mortgage: Terms can range from 10 years to 30 years.
  • Auto loans: These are usually available within 24, 36, 48, 60, 72, and 84 months.

How to choose the best loan term?

The best loan term length would mean monthly repayments that you can easily afford with a low Annual Percentage Rate or APR and the lowest possible overall cost while also having the shortest length. These are the factors that you need to consider while determining the best loan term length for your financial situation.

  • Interest rate

One of the most important factors to consider while choosing a loan term length is the interest rate. Usually, the longer the loan term, the higher the interest rate and the overall cost because lenders consider long-term loans as more risky as compared to short-term loans. As a result, you end up paying more in interest over the life of the loan if you choose a longer loan term.

  • Monthly payments

A longer loan term would mean lower monthly repayments but you will have to pay more in interest over the life of the debt. On the other hand, a shorter loan term would mean higher monthly repayments but you will incur less in terms of interest rate overall.

  • Loan amount

The total amount can also have an impact on your loan term. If it’s a small amount, a shorter loan term may be more wise. For example, for short-term, you should choose the shortest possible term because they will be more manageable and the loan will be off your shoulders quickly too. For larger amounts, a longer loan term would be more realistic since you will get more time to pay it off.

  • Personal finances

Your finances will play the biggest role in choosing a loan term. Take a moment to consider your financial goals before committing to anything. If you want to pay off the debt quickly or pay less interest, then a shorter term would be better for you. However, want doesn’t necessarily equate to having the means to afford it. If you don’t have the funds to pay the loan off quickly then settling for a slightly longer loan term would be best to ensure you don’t struggle with the repayments. Missed repayments can damage your credit score and some loans even charge you a penalty for late payments. So be mindful and realistic about your finances before you choose a loan term.


It’s important to be honest and realistic about your expectations and finances while trying to figure out which loan term would be best for you. Before you start weighing the pros & cons for short terms and long terms, try to analyze whether you can keep up with the repayments or not. There’s no one-for-all answer here, the best loan term is one where you can afford the repayments comfortably without landing in a financial crisis. If a longer-term suits your finances, you should go ahead with that. We hope this helps you figure out which kind of loan term length would be best suited to your situation.

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