Loan Period

The repayment length of a loan is called the loan period.

A loan period is the amount of time that a borrower will have to repay their loan. It will be determined by factoring in the minimum and maximum payment, interest rate, and principal amount. Simply stated—the start of loan repayment, all the way until the end, is called the loan period.

Loan periods can vary quite a bit and depend on factors such as the type of loan, state laws, and your credit history.

Why Is a Loan Period Important When Borrowing Money?

A loan period can be a huge factor when determining whether to borrow from any lender. Here are a few general things to keep in mind:

  • The longer the loan period, the more interest, but the monthly payments can be lower.
  • The shorter the loan period, the less interest you will pay, but monthly fees can be high.

Factoring these disadvantages and advantages of a more extended loan period versus a shorter one is essential to consider before agreeing to repayment terms.

Another consideration to make when reviewing a loan period is how it will impact your credit score. In general, paying off a loan quickly usually is a positive step for your credit score. However, for others, this potential positive impact may not be worth the amount of money coming out of their monthly budget.

Essential Variables of the Loan Period

A loan period will encompass many details. Here are a few things to pay attention to before agreeing to terms:

  • The Interest Rate — your interest rate will play a huge role when determining the cost of borrowing funds. Make sure you know your interest amount in both monthly terms and annual terms. Additionally, ask about fixed or variable interest.
  • Balloon Payments — for some loans, a large payment may be due at the end of the loan period. Ask your lender about that, so there are no surprises after repayment.
  • The Minimum Monthly Amount Due — your minimum monthly payment should be a significant factor when determining general loan affordability and when thinking about whether a loan period works for your budget.
  • The Principal Amount — the principal amount is the amount borrowed without any fees or interest attached. It may be beneficial to know precisely how much you borrowed and the difference in what you will be paying back.

All these factors together can help you determine your best-suited loan period! Remember that the better your credit score, the better interest, and other terms tend to be. And so, it may be a good idea, if possible, to look for a loan when your credit is fair or reasonable.

What About Early Payment Penalties With Loan Periods?

Most of us know about minimum monthly payments. However, some lenders may also have caps on the amount paid each month. When a borrower pays early, they may face penalties in the form of fees. Early payment penalties are sometimes implemented into subprime lending because of the lender’s risk with their borrower. The interest rates that are often high add security for the lender from month to month.

The good news is that there are lenders you can actively choose from that offer flexibility with early payments.

What Kinds of Loan Periods Can I Expect on Different Loans?

Depending on the loan type, loan periods can vary. Below you will find some of the commonly used loans and average ranges for their repayment:

  • Personal loans and credit cards can vary significantly in amount and terms; therefore, their loan period can range from a few months up to a few years.
  • Car Loans — 72 months
  • Mortgages – 25 years
  • Title Loans 1-3 years
  • Home Equity Loans 5-30 years
  • Student Loans 5-20 years

What Should I Do If I Cannot Make a Payment Within My Loan Period?

Sometimes when repaying a loan, you may find that your finances have changed. The good news is that most lenders tend to be flexible when it comes to loan periods. If the issue is a one-time non-payment, they may simply apply a late fee. For problems that are larger and will impact the entirety of repayment, your lender may try to come up with an adjustment to your loan period. Whether that means extending the loan for lower monthly payments or offering another loan product that better fits your needs— there may be options.

What if an Asset Is Involved?

For many people, having an asset attached to a loan and being unable to make payments can add even more uncertainty. The good news is that most reputable lenders will provide reasonable accommodations for the borrower to get back on track regardless of the asset. However, once the loan has defaulted, keep in mind that that asset will belong to them.

The best thing you can do to make things go as smoothly as possible is to be transparent and let your lender know as soon as possible about any significant changes to your finances.

If your current lender cannot help you, it may be worthwhile to look into refinancing your existing loan if that means more manageability.

Your loan period is the beginning to the end of loan repayment. It is an essential factor to consider before you take out a loan, regardless of the type. Knowing exactly how much you will pay and for how long, you can be sure you are making an informed lending decision.

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