Lindsay VanSomeren is a personal finance writer based out of Kirkland, Washington. Her work has appeared on Business Insider, Credit Karma, LendingTree, and more.
Lindsay VanSomeren ContributorLindsay VanSomeren is a personal finance writer based out of Kirkland, Washington. Her work has appeared on Business Insider, Credit Karma, LendingTree, and more.
Written By Lindsay VanSomeren ContributorLindsay VanSomeren is a personal finance writer based out of Kirkland, Washington. Her work has appeared on Business Insider, Credit Karma, LendingTree, and more.
Lindsay VanSomeren ContributorLindsay VanSomeren is a personal finance writer based out of Kirkland, Washington. Her work has appeared on Business Insider, Credit Karma, LendingTree, and more.
Contributor Rachel Witkowski Correspondent/EditorRachel Witkowski is an award-winning journalist whose 20-year career spans a wide range of topics in finance, government regulation and congressional reporting. Ms. Witkowski has spent the last decade in Washington, D.C., reporting for publications i.
Rachel Witkowski Correspondent/EditorRachel Witkowski is an award-winning journalist whose 20-year career spans a wide range of topics in finance, government regulation and congressional reporting. Ms. Witkowski has spent the last decade in Washington, D.C., reporting for publications i.
Rachel Witkowski Correspondent/EditorRachel Witkowski is an award-winning journalist whose 20-year career spans a wide range of topics in finance, government regulation and congressional reporting. Ms. Witkowski has spent the last decade in Washington, D.C., reporting for publications i.
Rachel Witkowski Correspondent/EditorRachel Witkowski is an award-winning journalist whose 20-year career spans a wide range of topics in finance, government regulation and congressional reporting. Ms. Witkowski has spent the last decade in Washington, D.C., reporting for publications i.
Updated: Feb 12, 2021, 4:02am
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Loan terms can have a couple of different meanings. On one hand, it can refer to how long you’ll be paying off your loan. On the other, it also refers to the details of your loan (or terms and conditions), like your monthly payment amount, your due date, your interest rate and any other finance charges.
Understanding your loan’s terms is critical so you can make sure you pay back your loan in a timely manner and that you’re getting the best deal.
If you pay attention to little clues in how people talk about loan terms, you can often tell what someone’s talking about.
If someone’s talking about the “loan term” (singular), they’re usually referring to the term length—how long you have to repay the loan.
If someone’s talking about the “loan terms” (plural), they’re generally talking about all the details that make up your loan, including how much you’ll owe each month, when your payment is due and your annual percentage rate (APR).
When you take out a loan, you’ll pay it back slowly over time through monthly payments. At some point, you’ll have repaid the entire loan and you’ll be free of the debt. The amount of time the lender gives you to repay your loan is called the term length, or your “loan term.”
Here are common loan term lengths:
When you’re shopping for loans, you’ll generally get a range of term lengths to choose from, which depends on two factors: your creditworthiness and what is available through the lender. The longer the term length, the smaller your monthly payment, so it’s tempting to stretch your loan out as long as possible.
However, if you can and if you’re able, it’s always best to choose the shortest-term loan with monthly payments you can afford. There are two reasons for this: you’ll be out of debt sooner, and you’ll save a lot more money over time. That’s because while stretching your loan term out shrinks your monthly payments, it actually increases the amount of interest you pay over time.
“Loan terms”—plural—is generally a shorthand way to refer to your loan’s terms and conditions. These are all the rules that define how your loan works. The loan agreement you sign when you accept your loan outlines these rules.
The most important loan terms for you to know are:
It’s also crucial to know your loan terms because, if you play your cards right, you can actually negotiate a more favorable loan. Some lenders offer a prequalifcation process, which lets you see what your terms would be prior to submitting your application. Prequalifying with multiple lenders will give you more data points, making it easier to compare and find the best offer.
But that’s not the end of your negotiation. Once you find the best offer for your needs, you may be able to use it as a bargaining chip to get an even better offer. You can take that offer back to the other lenders you previously prequalified with and see if they can offer better terms.
While you can use this strategy to negotiate your loan terms on any type of loan, it’s especially powerful for mortgages and car loans. Because mortgages have large dollar amounts, even a tiny adjustment to your offer can save you hundreds or even thousands of dollars by the time you pay your house off.
And if you buy your car from a dealer, there are often financing departments that are especially easy to negotiate with. That’s their whole job, after all, and there’s already an established precedent for negotiating car prices.
Forbes Advisor Editor Jordan Tarver contributed to this article.