Long Term Loans: What Credit Score Do I Need?

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Long Term Loans: What Credit Score Do I Need?

The general perception of personal loans is that they’re ideal for short term financing. However, several lenders offer personal loans for terms longe

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The general perception of personal loans is that they’re ideal for short term financing. However, several lenders offer personal loans for terms longer than five years. If you’re looking to borrow a sizeable sum of money but don’t think that you’ll be able to repay it within the short term, you could consider a long term loan.

Long term loans have more extended repayment periods and smaller monthly instalments. For instance, you could borrow a more significant amount and spread it across ten years over fixed monthly instalments.

While a typical loan can help solve a short-term financial crunch, long term loans facilitate big-budget ventures through affordable and convenient monthly instalments.

Learn more about long term financing here.

What are long term loans?

Long term loans are personal loans that you can over an extended term – typically five years or more. People usually borrow long term loans when they need a substantial sum of money, which they then repay over a 5-10 year term. You could use this loan to fund big-ticket projects such as home improvement, business investments, purchase of fixed assets, etc.

Long term loans enable you to split the cost of your venture into affordable monthly instalments over a fixed term. Long term loans give you ample time to repay your loan, even if you borrow a small amount of money.

While long term loans help make repayment affordable, they can accrue you more interest than short term personal loans. The longer your loan has a balance, the longer you’ll have to pay interest on the loan.

So, you may end up paying more interest over a 10-year loan than a 5-year loan. Now, even if you get a loan offer with a low-interest rate, you will end up paying more interest if the term is too long. Therefore, a long term loan could be a more expensive option overall.

Long term personal loans: How do they work?

You can pay off a short term loan within 1-2 years, but it takes longer to repay a long term loan. With a good credit score, proof of income, you are likely to qualify for competitive rates and terms. But do consider how much you might end up paying in interest.

Even if your long-term loan has a low-interest rate, it would be best to pay it off as soon as you possibly can to save on interest. It is also essential to check if your loan agreement allows an early settlement and at what charges. Some of these details are mentioned in the fine print, so scrutinize your contract for additional costs.

Here’s what a lender’s decision depends on:

  • Credit history/credit score
  • Loan amount
  • Loan term
  • Borrower’s income
  • Debt-to-income ratio

As long as you fit the lender’s requirement, they’re likely to offer you competitive deals, meaning lower interest rates. To truly reap the benefits of your long term loan, don’t just compare interest rates; try comparing the APRs.

The Annual Percentage Rate or APR will give you the overall cost of your loan, expressed as a percentage. APR encompasses additional charges – loan origination fee or brokerage fee, per se. A loan offer with a relatively lower interest rate may have a higher APR. It is vital to consider these extrinsic factors before taking a call.

The key to responsible borrowing is to ensure timely payments towards your loan. Lenders regularly report your payment history to credit bureaus. While a timely payment can boost your credit score, missed payment could cost you 80 points from your credit score. If you default, the lender may pursue you with a CCJ, costing you 250 points from your credit score.

Defaulting on your loan can have severe ramifications. Such damage to your credit score can hinder your future credit requirements and impact your financial goals. So, it is critical to make an informed decision by assessing your affordability before applying for the loan.

What credit score do I need to borrow long term loans (UK)?

Your credit score is pivotal to your long term loan application. Stellar credit history can help you qualify for better offers. However, credit-challenged borrowers may not be able to qualify for competitive terms and interest rates.

Different Credit Reference Agencies (CRAs) use different scoring models. Experian rates a score above 880 out of a possible 999 as good. For Equifax, a 420 out of 700 is considered a decent score. TransUnion classes 781 or more out of a maximum 850 as a good score. As long as you fit the lending criteria, you will most likely get better offers.

Can I borrow long term payday loans?

Payday loans are high-cost short-term loans that you can borrow to cope with urgent financial emergencies. The typical loan amount for payday loans ranges from £1000 to £2000, which you can repay within a week or a month.

It is pretty uncommon to find long-term payday loans since they are quick cash advances. However, if you do find one, it may not be the best idea to borrow one. Payday loans have excessive interest rates and APRs, which sometimes exceeds 300%.

If you’re strapped for cash and need a loan urgently, you could consider alternatives such as personal loans, home equity loans, HELOC, guarantor loans or credit cards. Regardless of the form of credit you choose, it is crucial to ensure timely repayments for your loan.

Missing a repayment could be detrimental to your credit score. If you consistently miss payments, the lender may get a CCJ issued against you, which could stay on your credit file for six years. In the case of secured loans, lenders can repossess and sell your property to recover their loss. Weigh the pros and cons of each option before making a decision.


If managed well, a long term loan can be an excellent opportunity for establishing a credit history. Smaller monthly payments are much easier to juggle with monthly expenses. A long term loan without early repayment charges will give you greater repayment flexibility in case you wish to repay the loan early.