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Financial needs come in all shapes and sizes. Fortunately, so do loan products. Did you know you can get 5-year loans?
What Is A 5-Year Loan?
A five-year loan is a finance contract in which the repayments of the debt are typically made on an annual, monthly, or quarterly basis with interest charges accruing using a fixed interest rate. This type of lending term can be used by homeowners looking for mortgages and car buyers who want to finance purchases over the course of five years. In these situations, borrowers pay less in total because they have been given more time to repay it back.
Why Would I Want A 5 Year Loan?
It’s really common to get 5-year loans for somewhat large amounts of money, such as financing a new car. But if you were buying a car, you would probably be looking for car loans, not 5-year loans.
Another reason might be to help cover school expenses. It typically takes several months to a few years to complete an educational program. In some cases, personal loans for school can make more sense than a student loan.
Let’s say you want to take the entire summer off to attend a coding school, but you don’t have any money in the bank. Then you might want to get a $5000 personal loan to cover living expenses with the expectation that you will have a better paying job after you complete the course.
A loan of that size is not something you will want to pay off in a year or less, even if your income goes up dramatically. So that would be the perfect time to consider a 5-year loan.
What Information Do I Need To Provide To Apply?
This will depend somewhat on the size and type of loan. For example, if you are getting an online title loan, you will need a copy of your title.
Regardless of what type of loan you are seeking, you will need to provide identification, such as:
- A military ID card.
- A driver’s license.
- A state issued ID card.
- A tribal ID card.
How Do 5 Years Loans Work?
These are typically installment loans. You make a monthly payment to cover a portion of the loan, plus interest and any other fees.
There might be a couple of reasons for such a loan. One might be the size of the loan.
They are often for several thousand dollars or tens of thousands. These are loans that you cannot afford to pay back in one lump sum.
Alternately, they might be for a few thousand dollars, but with higher fees. For example, you might be looking for bad credit personal loans guaranteed approval.
The Benefits Of 5 Year Loans
Consumer advocates and mortgage experts say five-year loans can benefit borrowers in situations where:
- Consumers want to buy a home and realize they may not be ready for a 15- or 30-year mortgage. With a five-year loan, the consumer will only pay the interest, avoiding the added costs that come with paying off the principal as well as other upfront fees for closing costs. By opting for a shorter loan, consumers can avoid tying up significant funds for years at a time.
- Many experts agree that five-year loans are less risky because these types of agreements usually have better interest rates than those offered by finance companies that provide plans that last longer than five years.
- A five-year loan also helps first-time homebuyers who may find that a 15- or 30-year mortgage is too much for them. In the shorter term, the consumer only pays interest, which means there are no additional fees to take out a mortgage.
- Consumers who are seeking financing for vehicles should consider five-year loans as well. Whether it’s financing a new or used car, consumers should shop around to make sure they are getting the best deal possible.
The Drawbacks To 5 Year Loans
Although there are definite benefits to using five-year loans it is advisable that consumers think about their long-term goals before jumping into these types of agreements.
- Consumers who get into five-year loans should expect to pay interest charges often over the course of the loan. While the interest rates may be lower than what is offered through other options, consumers will still have to pay that cost.
- Many experts agree that it may not be feasible to make all of the required payments each month on a five-year loan. The consumer should make sure he or she can afford these payments before taking on this type of financing agreement.
- Some consumers who stop making their monthly payments early on in the five-year period find themselves with additional debt, which can prove difficult to handle if things don’t turn out as planned financially. Although some finance companies offer limited or no penalties for early payment, it is wise for consumers to consider the long-term ramifications of these agreements.
- Many of the best five-year loans require that consumers purchase a new car after 90 days, which means the car will need to be paid off before more payments can be made. Consumers who choose this type of financing should make sure they have enough money saved up before taking on a financing plan that requires a new car purchase.
Which Loans Are For A Period Of Up To 5 Years?
Here’s a list of common loans for a period between one and five years:
- Auto loan. In this type of loan, consumers generally borrow money from a financial institution to buy a car or truck. The money is then used to purchase the vehicle, pay for insurance and cover other expenses associated with the vehicle.
- Personal loan. Just like it sounds, consumers looking for financing can get personal loans to pay off bills or cover emergency expenses. These types of loans typically last between one and five years with adjustable or fixed interest rates depending on the financial institution where the borrower gets his or her money. Some lenders may also offer both options so consumers can choose their interest rate based on their personal situation.
- Education loan. Borrowers can take out these types of loans to pay for post-secondary education, including vocational schools, universities, and even online courses. Prospective students looking to sign an education loan should shop around for one that can cover all of their expenses, including books and living costs.
- Home Equity Loan/Line of Credit. Homeowners who have a lot of equity in their homes can tap into that equity by getting a home equity line of credit or home equity loan from a bank or lender. These types of loans are generally offered on a fixed rate basis, sometimes as low as 2.
Start Your Application For A 5 Years Loan.
TheGuaranteedLoans can help you find the right loan product for you. We help streamline the process and help you find the best deal for your needs.
You fill out one set of forms with us, then we check your information against our database of verified lenders to see what loan products might be a match. Whatever matches we find, we notify the lender so they can contact you to complete the process. This means you only have to look at loans for which you have been prequalified, thereby saving you time and hassle.
FAQ
Yes. A mortgage that lasts between one and five years is called a Subordinate Mortgage; it is subordinate to a mortgage that lasts longer than five years.
If you were to take a $10,000 loan for five years with a fixed rate of 5%, you would pay $535 per month for a total of $53,000.
But the payment would only be required for a fraction of that amount. If you choose to pay off the loan early, you will only have to make a partial payment which is about 25% of the outstanding balance. This leaves more money available to make larger payments in the future.
It depends on your financial situation. It can be a good idea if you have enough money to pay for the monthly payments, but if you’re not sure about your income in the coming years, it might be wiser to take out a loan with a longer-term.
The longer the car loan, the more interest you will pay in the long run. So if you have a low-interest loan for five years or less, it will be cheaper, in the long run, to pay off your vehicle with that loan than to take out one with a longer-term.