How does a 5-year loan work?

With a 5-year personal loan, you borrow a set amount of money and pay it back every month over five years. The lender charges you interest on the amount you borrow, so you end up paying more back over the length of the loan. By spreading your borrowing over five years, it often makes it more manageable to pay back the money than a shorter-term loan.

At Asda Money, we work with a panel of carefully selected and trusted UK lenders to help find a 5-year loan that works for you.

We search our lender panel to find different offers to meet your requirements and borrowing needs. With one simple eligibility check, you’ll only see offers from the most suitable  lenders on our marketplace. It’s then up to you to compare each offer and choose the one that best fits your circumstances. You’ll then go on to complete a full application with the lender. 

How much will a 5-year loan cost?

The full cost of a 5-year loan depends on a range of factors.

When you take out a loan over five years, you’ll need to pay interest. The interest rate and APR are set by the lender. Once you apply for a 5-year personal loan, the lender will offer you an interest rate based on your financial history and credit rating. You’ll likely be offered a lower interest rate if you have a better borrowing history.

A 5-year loan will likely have a lower interest rate than a shorter-term loan. Also, by spreading your loan over a longer term, your monthly payments will be lower. Just remember with a longer loan you will end up paying more in interest over the term of the loan, so you’ll pay more back to the lender in total. Use our helpful loan calculator to get an idea of how much you could potentially pay each month over the term of your loan.

What can I use a 5-year loan for?

The reason for borrowing the money is up to you. Often people use 5-year loans to support significant life events, whether a wedding, home improvements, or a dream holiday. You may also consider a 5-year loan if you have existing debts and want to consolidate them into one monthly payment*.

*Please remember that by consolidating existing borrowing, you may be extending the term of the debt and increasing the total amount you repay.

Advantages of a 5-year loan

There are several advantages of borrowing with a 5-year loan, including:

• Lower interest rate: By taking out a 5-year loan, you will likely be offered lower interest rates than a shorter-term loan. Although the exact interest rate you’re offered will also depend on your financial history as well as the length of the loan.
• Smaller repayments: By spreading out the loan over a longer period, like five years, your monthly repayments may be smaller. Just remember, you will end up paying more in interest over a longer-term loan.
• Flexibility: Our lenders provide loans from £1,000 to £25,000. Borrowing over five years gives you the flexibility to make important financial decisions with repayment terms you’re able to afford.

Disadvantages of a 5-year loan

Before you apply for a 5-year loan, consider:

• There’s more to pay back: Even with a lower interest rate, a 5-year loan is likely to be more expensive over the full term of the loan compared to borrowing the same amount over a shorter period – say one or two years. This means that by choosing a longer loan, you’ll end up paying more interest in the long run.
• You’re in it for the long-term: By choosing a 5-year loan over a 1-year or 2-year loan for example, you’re committing yourself to meeting your monthly payments for a full five years. It may be affordable now, but what happens if you lose your job or your financial situation changes during that time? Remember, missing any payments on a loan can be damaging to your credit score.

Getting a 5-year loan with bad credit

If you’ve had money problems in the past, you may have a poor credit rating which can make borrowing more difficult. You may still be able to get a 5-year loan with bad credit, but often there will be a smaller pool of lenders willing to lend you the money. In most cases, this will be with higher interest rates too.

If you can get a 5-year loan with poor credit, it can help boost your credit score over time. By meeting your monthly repayments, you’re demonstrating responsible borrowing which can have a positive impact on your credit score.

Can I get a loan over a longer period?

Yes, at Asda Money the lenders on our panel provide personal loans up to seven years.

We’re here to help

At Asda Money, we can help you find the right loans for you from across our panel of lenders, whether you’re looking for a 5-year loan, a 7-year loan, or a 12-month loan. We can also help you understand how to better manage your finances with our Financial Support.