How to choose the best personal loan term length

You've got goals you want to work toward, and they all take money. Personal loans smooth out cash flow hiccups and could help you reach your destination.

You'll need to do a little research to find the right loan. That starts with a look at personal loan rates; you'll also have to think about how long your loan term should be.

We'll guide you through how to choose the best personal loan term to fit your budget.

What is a personal loan term?

If you're not familiar with how personal loans work, a term is the length of time that you have to repay what you borrow.

Personal loan terms commonly range from about one to seven years (roughly 12 to 84 months). While there is no strict definition of short- vs. long-term loans, most consider loans of three years or less to be short-term.

Lenders can measure personal loan terms in months or years. Achieve, for example, offers personal loans with terms of two, three, four, or five years.

When you apply for a personal loan you might be asked what loan term you'd prefer. Your answer can affect your monthly payments and how much interest you pay overall.

Short-term vs. long-term personal loans: What's the difference?

Lenders can offer short-term and long-term personal loans. It helps to know what that means for your repayment.

Short-term personal loans

Short-term personal loans are meant to be repaid quickly. A typical loan term may be six to 18 months, though short-term loans may have terms of up to 36 months.

A shorter term means your monthly payments will be higher. The upside is that short-term loans tend to have lower interest rates.

You might choose a short-term personal loan if you:

• Want to pay the loan off as quickly as possible.

• Can afford the monthly payment.

• Desire a lower interest rate.

Long-term personal loans

Long-term personal loans have longer terms. For example, you may have four to seven years or even longer to pay back what you borrow.

The longer the term, the lower your monthly payment is likely to be. However, long-term personal loans often carry higher interest rates.

You might prefer a long-term personal loan if you:

• Need a lower monthly payment.

• Plan to borrow a larger amount of money.

• Qualify for the lowest rate available for your chosen loan term.

How term length affects monthly payments and interest

Here's how the trade-off works. Say you borrow $10,000 at 10% APR (annual percentage rate). Over three years, your monthly payment would be about $323, and you'd pay roughly $1,616 in total interest. Stretch that same loan to five years and your payment drops to about $212 per month. Total interest climbs to around $2,748. The longer term makes each payment easier to manage, yet you pay more over time.

How to decide on the best personal loan term for you

The best personal loan term is one that balances your needs and goals. Here are three things to keep in mind as you shop for a personal loan.

• Budget. Your loan payments should fit where you are financially and be an amount you can afford for the entire term. You can use a personal loan calculator to compare payment amounts for different terms, and then check those amounts against your personal budget to see what's doable.

• Goals. You may know what you plan to use a personal loan for, but ask yourself what your goal is for repayment. For example, do you want to pay it back as quickly as possible? Or do you want to get the lowest monthly payment? And how much do you want to borrow? Your answers to these questions can guide you toward the right personal loan term.

• Costs. Any time you borrow money you have to consider the costs. Your choice of loan term can influence the interest rate you pay and your overall cost to borrow. It's also important to factor in any fees you might pay, such as origination fees, application fees, or prepayment fees.

What to ask before choosing a personal loan term length

Your choice of personal loan term matters so it's important to get it right. Ask these questions before you commit to a loan:

Will the payment change? Personal loans usually have fixed interest rates so the payment doesn't change over the life of the loan. However, your payment could change if you get a variable-rate loan. With this kind of loan, your rate can go up or down which can make your payment increase or decrease as well. A variable-rate loan with a longer term could put you at risk of more payment changes.

Will your income change? Changes to your income can make loan payments more or less affordable. If you think your income will hold steady or increase then you may be comfortable with a shorter term. But if there's a possibility that your income may drop you might want a longer loan term so the payments are lower.

How much interest will you pay? If you want to pay the least amount of interest, then a shorter-term loan could make sense, as long as you can afford the monthly payments. Personal loan calculators let you see what you'll pay in interest from the first loan payment to the last.

Will you refinance? When you refinance a personal loan, you get a new loan to pay off the balance. A refinance could make sense if rates drop or your credit improves and you now qualify for a lower interest rate. You typically benefit the most from a refinance if you still have several years' worth of payments left, so this might work better if you choose a longer loan term initially.

Will you pay the loan off early? If your income increases or you get a financial windfall you might decide to pay your loan off early. If you've chosen a longer loan term then an early payoff could save you some money on interest. Just be sure to check with your lender to see if you'll owe a prepayment penalty. These penalties help lenders recover some of the money they lose on interest when you pay a loan off ahead of schedule.

Final tips

Personal loans can help you get ahead. You just need to decide which one to choose.

As you look at different lenders, check for things like flexible payment options or special perks that could reduce your loan cost. For example, Achieve offers three custom rate discounts to help you save on interest.

Every extra penny you don't have to spend on your debt is money you could apply to your other financial goals. Compare loan terms and offers carefully to see what different lenders have to offer.

Find out if you qualify.

What's next

• Take a look at your monthly budget and calculate how much you can reasonably commit to a new personal loan payment.

• Estimate how much you need to borrow, then use a loan calculator to compare monthly payments for different loan terms.

If you know what rates you qualify for, calculate the interest on the loan to see what you'll pay altogether.