The ideal loan term is subjective. You’ll need to figure out how much you can afford each month before determining how long your loan should be. Loan terms can range from a month to five years or more. Shorter loan terms lead to a higher monthly payment, and usually higher interest rates, Moolr ask the question: how long should my repayment period be?
Compare the different loan terms, and when possible, choose the shortest loan term available to you. While a shorter loan term will likely increase your monthly payments, you will find yourself paying a lower amount of overall interest. The shorter loan term usually comes with a higher percentage rate. Thus this seems like the worst option, right? No, not necessarily so. It is better to pay off a loan with 10% interest over 6 months than pay it off with 5% over 4 years, cost-wise.
The answer to the question posed by this article lies not in what is the cheapest option, but which is the most affordable option. The most affordable for your personal circumstances. You must decide what you can afford to pay back each month. It may be better to pay a bit more in total interest charges by having a longer loan if it means more comfortable repayments. The last thing you want is to be left short of money for essentials each month. How long your repayment period should be depends on such factors.
Moolr’s no-obligation quote tool will help give you an idea of how repayments differ according to how much you wish to borrow. And also how long you need to repay the loan. Use it to find out which terms suit you best.
If a lender accepts you for a loan and sends you the terms, check them carefully. Ensure that you are comfortable with repayments, and the interest rate seems fair to you. Headline rates are only available to a small proportion of customers with excellent credit scores. This is known as “risk-based pricing”. The majority of borrowers should pay closer attention to the typical rate – this rate must be offered to 66% of all successful applicants. If you struggle to get good rates because of a mixed credit history, consider delaying your application. Work on improving your score then try again.