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Does increasing loan term increase APR?

14

I am taking out a personal loan to consolidate debts from various sources into one payment at a lower APR.

The loan company lets me choose 24, 60, 72, etc. months to repay on the application. I can't know the APR I'll get until after submitting the application. Does choosing a longer term typically mean the lender will set it at a higher APR?

2 Answers

4

There's no "law of nature" that mandates a higher interest rate for a longer term loan, but companies do in fact charge a higher rate for a longer-term loan because research has shown that longer-term loans are riskier. Thus, higher rates are charged.

3

Yes, typically longer term loans have higher interest rates since it's more risk for the lender (among other reasons).

I would choose the shortest term loan that you can afford - you'll pay less interest AND get rid of the debt more quickly.


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Does increasing loan term increase APR?

14

I am taking out a personal loan to consolidate debts from various sources into one payment at a lower APR.

The loan company lets me choose 24, 60, 72, etc. months to repay on the application. I can't know the APR I'll get until after submitting the application. Does choosing a longer term typically mean the lender will set it at a higher APR?


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9

There's no "law of nature" that mandates a higher interest rate for a longer term loan, but companies do in fact charge a higher rate for a longer-term loan because research has shown that longer-term loans are riskier. Thus, higher rates are charged.

edit

Note that this generally only applies to unsecured loans. For secured loans (mortgages, auto loans, etc.), longer terms usually have a lower APR (but a higher total interest). - Mark Feb 26 at 0:35

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