How long should I borrow for?
Save money by avoiding long term loans
The length of time you borrow for is called the loan term, and is sometimes referred to as the lifetime of your loan.
If you want to save money, you should borrow for as short a time as possible. A long personal loan term of 10 years might sound tempting as it cuts your monthly payments, but you'll end up paying more in total interest.
For instance, if you needed a £3000 loan and wanted to pay it back over 18 months at an interest rate of 6.7%, you'd pay a total of £156.84 in interest. However, the same amount and interest rate with a loan term of five years would cost you £522 in interest - over £365 more.
Work out how much you can repay each month
You should work out a budget to see how much you can afford in monthly payments. Base your required loan term on this - you might find that you can afford to pay off your loan sooner than you think. NB: If you're borrowing to consolidate your debts, you won't have to pay credit card interest any more, so this can come off your budget.
Your decision about which lender to opt for should be partly based on your loan term, as well as the personal loan interest rate on offer. Some companies will only allow you to borrow for five years or so, or will only offer longer loan terms for larger amounts.
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