Everything you need to know about the term of a personal loan

Whatever you're planning to do, if you're about to borrow some money—whether you're eyeing a new car, want to remodel your home, or simply need a new washing machine—the term of your loan is very important. This is how long it will take you to pay back that loan. How exactly does this work? In this article, we'll explain it to you.

The term of your loan  

Imagine you opt for a nice long term because you think it will lower your monthly payments. It may sound appealing to pay less each month, but remember: the longer it takes you to repay, the more interest you will pay. This means that you will ultimately spend more money for the same loan. Therefore, try to pay off that loan as quickly as possible, but with monthly payments that you can afford without stress.

How long are you committed to this type of loan?

With a personal loan, terms vary from 6 months to a loan of 15 years, or 180 months. You choose your own term, and it is then fixed. Good to know: with most loans, you can make extra repayments whenever you want, which shortens the term. But watch out, sometimes this costs extra. So always check the fine print!

Which term Is tight for me?

Do you want to see what different terms do and how they affect your monthly payments? On various websites, you can find that it's quite simple to figure this out. Just check with the comparison tool, and you'll soon find the term that suits you.

What does the term do to the costs? 

Let's give you an example: suppose you borrow €10,000. If you opt for a term of 36 months, your monthly payments will be the highest, but the loan will be the most cost-effective in the long run. If you go for 60 or even 120 months, you'll see that the monthly payments decrease, but the total costs of your loan increase. In other words, borrowing for a shorter term is usually more advantageous.

In short, when choosing the term of your loan, it's about finding a balance between what is feasible for you per month and ensuring that you don’t end up paying a much larger amount than your original loan amount. Longer terms mean lower monthly payments, but they also end up being more expensive. So choose wisely with manageable monthly payments and try to keep the loan term as short as possible. Remember, borrowing money costs money.