How to Choose the Best Term Length for a Personal Loan

Most people consider a personal loan a short-term financing option with the best term lengths ranging from a few months to a year. Borrowers use these flexible loans to finance home renovations, pay for medical expenditures, and even consolidate credit card debt. Choosing the best term length matters.

But did you know there are also long-term personal loans? Choosing the best term lengths for your loan can make payment incredibly convenient depending on your needs for your best term length. Here’s what you should know about term lengths, as well as how to choose your best term length based on your needs. Read on!

Short-Term and Long-Term Personal Loans: What’s the Difference?

Short-term and long-term loans refer to the length of time it takes to repay a loan. Short-term loans are typically repaid within a few months to a year. Long-term loan repayments might range from a few years to many years (for example, 10-15 years).

Short-term loans are commonly connected with the need for immediate cash in tiny sums. Cash advance loans and loans originating from peer-to-peer lending are examples of this. Long-term loans are typically necessary for more significant sums or larger transactions, such as a home purchase loan. To learn more on how to find your best term length read about our personal loans!

How to Choose the Length of a Personal Loan

The term length of a personal loan is the period you have to repay the loan. Personal loans with terms ranging from 12 to 60 months, and sometimes longer, are available and result in cheaper monthly payments but more significant interest charges over time. Our best advice would be to choose the shortest loan period possible while making monthly payments you can quickly pay so you can keep loan costs to a minimum.

Where Can I Get a Personal Loan?

There are two types of personal loan providers: those with a banking license or charter and those without. The fundamental contrast between the two groups is the level of regulation.

Credit Unions and Banks

The Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), and the National Credit Union Administration oversee institutions having a banking license or charter (NCUA).

Many individuals think about local banks and credit unions first when considering a personal loan. If you apply there, you will most likely meet with a loan officer in person. The experience will be customized, and the officer will help you through the application process effortlessly. Banks tend to have higher qualification rules than other financing options.

Non-Banking Financial Institutions (NBFIs)

Non-Banking Financial Institutions (NBFIs) are financing sources that do not have a banking license (NBFCs). The primary distinction in terms of services is that NBFIs do not take deposits. NBFIs are regulated by the Consumer Financial Protection Bureau (CFPB) under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

Online and brick-and-mortar financing firms, insurance companies, peer-to-peer (P2P) lenders, payday lenders, and other non-bank enterprises are examples of NBFIs. Finance businesses frequently offer higher interest rates than banks or credit unions. However, they’ll approve most loan applications banks are unable to.

What Credit Score is Required for a Personal Loan?

Personal loan credit score criteria vary per lender. Many lenders prefer applicants with solid or exceptional credit (690 FICO or higher). However, other lenders allow borrowers with terrible credit (below 630).

A good credit score does not ensure that you will be approved or receive a better interest rate. Your qualification is mainly determined by your creditworthiness, which is often a mix of your credit history and score, as well as your debt-to-income ratio.


The length of your personal loan term can affect how much you pay each month and how much you pay in total interest throughout the term length. When comparing personal loans, term duration isn’t the only thing to consider. The lender you pick, your debt-to-income ratio and your credit score can all significantly influence the cost of your loan.

If you’re looking for personal loans in Bessemer, AL, Bessemer Finance Company can help! We’ll ensure you get a loan that makes financial sense for your needs. Don’t hesitate to apply with us today!

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