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If you add an extra year to your personal loan repayment period, you’ll pay a lot more interest. See how much it could cost you to delay repayment. 

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A personal loan is a flexible borrowing option. Many lenders offer personal loans, and you can usually borrow as little as $1,000 or as much as $100,000 depending on your needs, your financial credentials, and which lender you choose.

You will also have a choice of loan terms as well. That means you can decide upfront how long you want to take to pay back your loan. Many lenders offer options like a five-year, seven-year, or even a 10-year repayment timeline.

A longer repayment timeline has one big benefit: lower monthly payments. But it often comes with a higher interest rate, and you will of course pay interest for a longer period of time. So, if you’re thinking of opting for a loan with a longer payoff schedule, it’s important to calculate how much extra money will come out of your bank account if you choose this option.

Here’s how much adding an extra year onto your loan repayment timeline could cost you

If you’re considering adding an extra year onto your loan repayment term, you will pay more over time both because you can expect a slightly higher rate and because of the extra time it will take to become debt free.

The table below shows an example of just how much of an impact this can make if you took out a $10,000 personal loan and you paid it off in three years versus four years. It’s based on loan rate estimations for a well-qualified borrower.

3 Year Repayment 4 Year Repayment Interest Rate 8.49% 9.59% Monthly Payment $316 $252 Total Interest Paid Over Time $1,376 $2,096
Data source: Calculations by author.

As you can see, if you take an extra year to pay back your loan, you would end up paying $720 more in interest over the life of the loan. And you would get stuck committing a good portion of your income to a monthly payment for a whole extra 12 months, which is a pretty long time. So, while your monthly payment is $64 lower, you are paying a big price to have that reduced payment.

And the more you borrow, the more an extended repayment term will cost you. For example, if you took out a $50,000 loan with the same three- or four-year repayment term options, you would save $319.84 on monthly payments with the longer loan, but your total interest paid would rise from $6,800 to $10,400.

Should you choose a loan with a longer or shorter payoff time?

If you can afford the higher monthly payments that come with a shorter personal loan repayment period, you should usually opt to take the least amount of time possible to pay off your personal loan. You don’t want to commit to making monthly payments for longer than necessary or make your borrowing any more expensive than it has to be.

At the same time, you don’t want to get in over your head and agree to take on a personal loan that comes with monthly payments you’ll struggle to make. So, take a close look at your budget, see how much you can afford to devote to debt payoff, and choose the shortest personal loan repayment period that won’t cause you to stress each month about whether the payments are within reach.

Our picks for the best personal loans

Our team of independent experts pored over the fine print to find the select personal loans that offer competitive rates and low fees. Get started by reviewing our picks for the best personal loans.

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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