Edited by Michelle TipswordHow to Choose the Best Loan Term for Your Needs
Edited by Michelle Tipsword
Quick Answer
- Your loan term is the amount of time it will take to repay what you’ve borrowed.
- The lender should specify your term, interest rate and monthly payment.
- Your loan is satisfied when you make your final payment at the end of the term.
Your loan term can directly affect your monthly payment and your total borrowing costs. Opting for a shorter loan term will result in larger monthly payments, but you'll pay less interest from start to finish. The opposite is true for longer loan terms. The right term length for you will depend on your budget and financial goals.
What Is a Loan Term Length?
Your loan term is the amount of time it will take to repay what you've borrowed (unless you choose to pay off your loan early). When you take out a term loan, the lender should specify your term length, interest rate and monthly payment. The loan is satisfied when you make your final payment at the end of the term.
| Loan Type | Typical Loan Term |
|---|---|
| Mortgage | 15 or 30 years (or 40 years, but this is less common) |
| Auto loan | 48, 60, 72 or 84 months |
| Personal loan | 12 to 84 months |
| Student loan | 10 to 30 years for federal student loans; five to 25 years for private student loans |
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Find APRs from 5.96% to 35.99% and flexible terms of 12 to 120 months. Loan amounts range from $1,000 up to $250,000, with funding available the same day or up to 3 days.
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Loan amount$2,000 - $50,000
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Term24 - 60 mo
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Term24 - 60 mo
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Loan amount$1,000 - $50,000
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Term36 - 60 mo
Est. APR9.99 - 35.99%
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Est. APR7.99 - 35.99%
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Term24 - 48 mo
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Loan amount$1,000 - $15,000
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Loan amount$15,000 - $50,000
Est. monthly payment$667 - $1,806
Term24 - 60 mo
View all of our Best Personal Loans for 2026 to see what you’re likely to qualify for, and the rates and terms you might get.
Pros and Cons of Shorter-Term Loans
Going with a shorter loan term has its benefits and drawbacks. Here are some important things to consider.
Pros
-
Lower loan costs: A shorter term allows you to pay less interest over the life of the loan. That could save you a significant amount of money, depending on how much you borrowed and your annual percentage rate (APR).
-
You'll eliminate the balance faster: You can then redirect those monthly payments toward other financial goals.
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Potentially lower interest rate: As of July 2026, the average rate on a 15-year mortgage was 0.67 percentage points lower than a 30-year mortgage, according to Fannie Mae.
Cons
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Higher monthly payments: A shorter term condenses your repayment timeline. You can expect a larger monthly payment, which might stretch your budget.
-
May impact other financial goals: If a large chunk of your monthly take-home pay is going toward debt payments, that could make it harder to save for other financial goals—like building your emergency fund or saving to buy a home.
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Potential credit risk: You may be more likely to miss a payment if your budget is stretched thin, especially if you experience a loss of income or surprise expenses. That could negatively affect your credit scores.
Pros and Cons of Longer-Term Loans
Choosing a longer loan term has its own pros and cons. You'll want to think about the following details before making a decision.
Pros
-
Lower monthly payments: Stretching out your loan term will reduce your monthly payments, which may be a good option for your budget.
-
Might be easier to save for other goals: Having more breathing room in your budget can allow you to fund your savings account and make progress toward other financial goals.
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May improve your eligibility: Lenders will consider your debt-to-income ratio (DTI). The lower this number is, the better. A lower monthly payment could reduce your DTI and make you a more attractive borrower.
Cons
-
Higher total loan costs: You can expect to pay more interest over the long haul. That could add up to a big expense, depending on your interest rate and loan balance.
-
Will take longer to get debt-free: A longer loan term will keep that monthly payment in your budget for a longer period of time. That could delay your other financial goals.
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Potentially higher interest rate: APRs are often lower for short-term loans. Your lender might tack on a higher rate for an extended repayment term because it increases their lending risk.
Shorter-Term vs. Longer-Term Loan Payoff Examples
Repayment terms can vary by loan type. Here's a general breakdown of what you can expect when looking at mortgages, auto loans and personal loans.
Mortgage Example
A 30-year mortgage offers significantly lower monthly payments, but it could cost well over twice as much in interest over the life of the loan.
| Loan Term | Loan Amount | Interest Rate | Monthly Payment (Principal & Interest Only) | Total Interest Paid |
|---|---|---|---|---|
| 15 years | $320,000 | 5.82% | $2,669 | $160,478 |
| 30 years | $320,000 | 6.49% | $2,021 | $407,385 |
Auto Loan Example
Auto loans can also get more expensive if you opt for a longer loan term. The lower monthly payment may or may not be worth it to you.
| Loan Term | Loan Amount | Interest Rate | Monthly Payment | Total Interest Paid |
|---|---|---|---|---|
| 36 months | $27,000 | 11% | $884 | $4,824 |
| 72 months | $27,000 | 11% | $514 | $10,008 |
Personal Loan Example
Choosing a longer loan term can make your monthly payment more affordable, but you might pay significantly more from beginning to end.
| Loan Term | Loan Amount | Interest Rate | Monthly Payment | Total Interest Paid |
|---|---|---|---|---|
| 36 months | $10,000 | 12% | $332 | $1,957 |
| 60 months | $10,000 | 12% | $222 | $3,347 |
Should I Choose a Shorter-Term or Longer-Term Loan?
The right loan term for you will depend on your financial situation and goals. Think about your budget and the monthly payment you can reasonably afford. You'll ideally have a loan term that allows you to cover your financial obligations without affecting your ability to save for other goals.
When to Choose a Shorter-Term Loan
A shorter loan term might be your best option if:
- You can afford higher monthly payments. In this case, a shorter term could save you money in the long run—and it might even unlock a lower interest rate.
- You want to pay off your loan faster. Eliminating your balance will free up cash in your monthly budget.
- You can easily save for other financial goals. For example, if a higher monthly payment would make it difficult to build your emergency fund, you might choose a longer term.
When to Choose a Longer-Term Loan
In some cases, a longer repayment term might make sense. Consider this option if:
- You want the lowest monthly payments. The main draw of a longer loan term is that it results in a lower monthly payment. That may be a real selling point if you're on a tight budget and need the most affordable option.
- You don't mind paying more interest in the long term. This isn't ideal, but you could always pay off your loan early to save on interest. Just be sure your lender doesn't charge a prepayment penalty.
- Financial flexibility is important to you. A smaller monthly payment can make it easier to save for short-term goals—and reach the finish line faster.
The Bottom Line
Loan terms vary, and there are pros and cons of choosing a short-term loan over a long-term financing option. One isn't necessarily better than the other. A shorter loan term will ultimately save you money in the long run, but it could strain your monthly budget—and put your financial health at risk.
You'll want to weigh all your options and consider your unique financial situation before making a decision. No matter what you choose, your credit scores will be a key factor when applying for a loan. Get your FICO® ScoreΘ and credit report for free from Experian to see where you stand.
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About the author
Marianne Hayes
Marianne Hayes is a longtime freelance writer who's been covering personal finance for nearly a decade. She specializes in everything from debt management and budgeting to investing and saving. Marianne has written for CNBC, Redbook, Cosmopolitan, Good Housekeeping and more.
Read more from Marianne