What are long-term loans

What are long-term loans?


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Are you assessing the financing options for your business or other endeavors? You’ve likely encountered long-term loans, merchant cash advances, equipment financing, and a number of other options. To help you choose the right financing for your business, we should first answer a core question: What are long-term loans?

This type of loan could be the answer you’re looking for if you prefer smaller monthly payments spread over a longer period. Long-term loans allow you to borrow  large sums of money and pay back the loan with payment terms that are more manageable than some other financing alternatives.

In this blog post, we’ll explain long-term loans, how they work, the benefits of long-term loans, the most common types available, and if you should consider a long-term loan as a solution for debt consolidation.

What are long-term loans?

When you’re looking to fund a big project or make a significant purchase, a long-term loan might be what you need. These loans have repayment terms that can last three to ten years, making them perfect for when you need a lot of money.

You can choose between secured loans, which might let you borrow more but require you to put up property as collateral, and unsecured loans, which may not require collateral.

Secured loans will also have better terms. Many personal loans are also secured.

How it works

Here’s how it works: Once your loan is approved, you get the money you need up front, and then pay it back in monthly installments over the loan’s term. The monthly payments include interest, which is a percentage of the amount you borrowed. The interest is amortized over the course of the loan.

These loans can help you manage the cost of big expenses without needing to have all the money up front.

Long-term loans also give you the flexibility to invest in your business’s future, whether it’s expanding locations or buying equipment to help you scale upward. By spreading the cost over time, you can fit these big investments into your monthly budget.

Interest rates

Interest rates on long-term loans are typically lower than those on short-term loans. This difference can lead to lower monthly payments, making long-term loans an attractive option for those who need to finance large purchases or projects but want to keep their monthly expenses manageable.

However, it’s important to consider the overall cost of borrowing over time. While the lower interest rates of long-term loans can make the monthly payments more affordable, the total amount of interest paid over the life of the loan can be higher.

For example, let’s assume you borrow $50,000 with an interest rate of 4%. Your first year of payments might look something like:

Month Principal Paid Interest Paid Total Payment Remaining Balance
1 $340.23 $166.00 $506.23 $49,659.77
2 $341.85 $164.38 $506.23 $49,317.92
3 $343.48 $162.75 $506.23 $48,974.44
4 $345.12 $161.11 $506.23 $48,629.32
5 $346.77 $159.46 $506.23 $48,282.55
6 $348.42 $157.81 $506.23 $47,934.13
7 $350.09 $156.14 $506.23 $47,584.04
8 $351.76 $154.47 $506.23 $47,232.28
9 $353.44 $152.79 $506.23 $46,878.84
10 $355.13 $151.10 $506.23 $46,523.71
11 $356.82 $149.41 $506.23 $46,166.89
12 $358.53 $147.70 $506.23 $45,808.36

To compare: If you take out a short-term loan, you’ll likely see that the annualized costs are higher than for a long-term loan option.

What are the benefits of long-term loans?

Long-term loans offer several advantages that can make them an appealing option for both individuals and businesses looking to finance large projects or purchases. Here’s how you can benefit from choosing a long-term loan.

Lower monthly payments

One of the immediate benefits of a long-term loan is the ability to spread the cost over a longer period of time. This, often combined with lower interest rates compared to short-term loans, results in lower monthly payments making managing your budget easier.

Higher borrowing amounts

With a long-term loan, you’re typically able to borrow more money. This is because the extended repayment period and lower monthly payments make it easier to manage larger loan amounts. This can be particularly beneficial when you’re looking to make significant investments in your business or education.

Better cash flow

Investing a large amount of capital into a single project or purchase can significantly limit your financial flexibility. Long-term loans help you avoid this by minimizing the time you’d otherwise spend saving up for an investment.

This means you can start earning potential returns on your investments sooner, helping to offset the cost of the loan. Additionally, by spreading the cost over time, you maintain more operational cash flow.

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Build credit

Regularly making payments on a long-term loan can help you or your business build creditworthiness. This is because lenders will often report to the credit bureaus. When you make payments on time, it can help increase your score.. Building a good credit history is crucial for securing future financing with less reliance on personal credit.

Retain control of your business

Unlike funding through private investors or issuing shares, which can dilute ownership and control, long-term loans allow you to finance your investments while retaining full control of your business. This can be a significant advantage for those who wish to maintain their decision-making power and independence.


What are the potential downsides of long-term loans?

Despite offering the convenience of lower monthly payments and the ability to handle large expenses, long-term loans come with downsides that borrowers should carefully consider.

Higher overall costs

One of the primary disadvantages is the higher overall cost due to the accumulation of interest over an extended period. This means that, despite lower interest rates, the total amount paid back can significantly exceed the borrowed sum.

Risk of losing collateral

The potential requirement for collateral or a guarantee adds another layer of risk, especially for loans with terms extending over a decade. With a secured loan, you risk losing valuable assets if you default on the loan. Lenders need to mitigate the financial risks associated with large sums of money, and requiring collateral is one way to do this.

Considerations for cash flow

Long-term financing is more appropriate for long-term projects and investments rather than for achieving quick financial wins or stabilizing cash flow.

Small business owners, in particular, who are looking to stabilize cash flow or manage short-term financial needs, might find short-term financing options more aligned with their goals. Short-term loans can offer quicker access to funds and may be easier to manage without the commitment to a lengthy repayment period.


You could qualify for up to $400,000 in right-fit financing.

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Types of long-term loans

When you’re considering long-term financing for your business, you have several options to choose from, each designed to meet different financial needs. Here’s a quick overview to help you understand what’s available.

  • Small business loans: Small business loans are tailored to support the needs of growing businesses. Whether you’re looking to open a new location, increase inventory, or invest in marketing, these loans provide the necessary funds to achieve your objectives.
    The amount and repayment terms will depend on your financial health, the type of loan and the lender.
  • Personal loans: If you don’t qualify for business loans, personal loans may be another potential route to get financing for your business. Some personal loans may be unsecured, meaning you don’t need to provide collateral.
    Personal loans also sometimes have longer repayment terms compared to short-term loans but come with higher interest rates.
    Personal loans are flexible in use. They can be used for your personal needs, and for business use cases, making them a versatile financial tool.
  • Education loans: Sometimes bringing your business to the next level might require you to pursue additional education. While not a true business loan, if you’re planning to pursue long-duration courses, education loans can help cover your tuition and other expenses. They come with varying interest rates and repayment terms, tailored to fit your future earning potential.
    These loans are characterized by their varying interest rates and flexible repayment terms, which are often structured to begin after graduation.

Should I consolidate debt with a long-term loan?

You may have heard of using a long-term loan for debt consolidation. While it may seem like a helpful idea, it’s important to weigh the benefits and risks carefully.

The main purpose of a debt consolidation loan is to combine multiple debts into one account. This can simplify your repayments and might even reduce your monthly payments.

However, there are risks to consider. Consolidating your debts might lead to accruing more debt if you’re not careful with your spending habits. In addition, the term of the loan and additional fees can make it even costlier than the original financing.

Finally, taking out a new loan can temporarily lower your credit score due to the hard inquiry on your credit report and the initial decrease in the average age of your credit accounts.

If you are struggling with your existing financing, the best first step is usually to talk to your original lender(s). They can often work with you to come to a solution.

Ready to fuel business growth?

With lower monthly payments, the ability to tackle large projects, and the flexibility to grow at your own pace, a long-term loan might be the key to unlocking your business’s potential.

We at Credibly, with 46,000+ businesses financed, believe in making your business aspirations achievable.

We’ll help you decide if long-term financing is right for your business, and get you on the road to growth.

Speak with a financing expert today.

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