Need some cash but worried about the cost of a short-term loan? A 12-month loan may be the right solution. Read on to learn everything you need to know to decide if a 12-month loan is right for you. Invest just five minutes of your time and learn how to find the best rates and terms.
What is a 12-month personal loan?
A 12-month personal loan is an installment loan with a 12-month repayment term. Upon approval, your lender will give you a lump sum, which you’ll pay back over the ensuing year. Repayments may be monthly, bi-monthly, or according to another set schedule.
12-month loans lie somewhere between short-term and long-term loans. Loans with terms shorter than 12 months are often designed for subprime credit borrowers.
Is a 12-month loan term right for you?
Loan terms can vary from two weeks to sixty months and beyond, so how do you decide which loan term is best for you? Here are some general guidelines you should keep in mind when comparing personal loans.
Whevener possible, look for:
- Loans with affordable payments that are not higher than 6% of your income.
- Lenders that offer double-digit annual percentage rates that drop as loan amounts increase.
- Credit reporting of payments and loan terms to at least one national credit bureau.
- Total costs lower than 50% of the loan amount.
How to find the best 12-month personal rates and terms
Use the calculator below to get rough estimates on the average rates you can expect based on your credit, term, and loan amount. Then check with the lenders below to find out what rates you prequalify for.
Note that this calculator uses data from real loan offers. So don’t be surprised if it doesn’t match the “best” rates lenders like to advertise but rarely offer to applicants. Your personalized rates may be much lower depending on your credit and income.
Do you need a higher loan amount than 3- or 6-month loans offer? Or do you simply need a little more time to pay your loan back? Then consider a 12-month loan.
When shopping for 12-month loans, you will find both lenders who cater to bad credit and lenders who tailor their loans to borrowers with fair-to-good credit. If you qualify for a lender catering to fair-to-good credit, you’ll qualify for higher loan amounts, and borrowing costs will be more reasonable.
Here is a list of the benefits and the drawbacks of 12-month loans.
- Higher loan amounts ($1,000 to $35,000)
- Flexible repayment options.
- Bad-to-fair credit may still be accepted.
- Credit and income check required.
- A wider selection of lenders available.
- Payments can be too high to repay in a year (easy to get in over your head)
- Must qualify based on income and creditworthiness.
Let’s give you a little more contect and look at the pros and cons of 3, 6, and 24-month loan terms.
3-month loans are often payday-type loans for people with bad or no credit. The repayment period is short and the interest cost is high, making it tough to pay it all back in time.
3-month loans can be helpful in the face of a financial emergency if you need cash quick. Further, you may be able to get approved without a credit check in brick-and-mortar locations. And the pay period is longer than the terms of most payday loans, which often span two to four weeks.
However, 3-month loans come with risks. Many borrowers who take out payday loans fail to pay them off on time. In these cases, borrowers must take out a new payday loan to pay off the old one. This cycle can accumulate a lot of debt.
Here is a list of the benefits and the drawbacks of 3-month loans.
- Quick access to cash in emergencies.
- May be able to get approved without a credit check.
- Longer repayment period than the standard two to four-week payday loan.
- Repayment period can still be difficult to fulfill.
- APRs are high to cover the risk for lenders.
- Loan amounts are low, often under $300.
6-month loans generally attract consumers with poor-to-fair credit. They offer higher loan amounts and longer loan terms than payday loans, but the interest costs are still very high.
In most cases, lenders will require a credit check.
Here is a list of the benefits and the drawbacks of 6-month loans.
- Poor to bad credit may still be accepted.
- Higher loan amounts ($300-$5,000).
- More time for repayment.
- Credit check often required.
- High borrowing costs.
- Higher loan amounts and high borrowing costs can make repayment difficult.
When you borrow for a two-year term, you’re getting into the long-term personal loan market. Here, you’ll find loans designed for fair-to-good credit and good-to-great credit.
The longer the term, the riskier the loan is for the lender, which means tougher approval criteria. However, it also means higher loan amounts and lower borrowing costs.
Here is a list of the benefits and the drawbacks of 24-month loans.
- Longer repayment period can be easier to meet.
- Higher loan amounts.
- Fair credit may be accepted.
- Lower borrowing costs.
- More lending options.
- Credit and income approval often required and it can be harder to get approved.
- Higher loan amounts may cause borrowers to get in over their heads.
Which loan is right for you?
To decide, you must consider several factors. Which loans can you qualify for? How much money do you need? How high-risk is the loan? In general, you should pursue the loan with the lowest borrowing costs (as long as you can realistically meet the repayment schedule).
Compare your options side-by-side below:
|Loan type||3-month loan||6-month loan||12-month loan||24-month loan|
|Minimum credit level||Poor||Poor-to-fair||Fair-to-good||Fair-to-great|
|Risk for default||Highest||High||Medium||Medium-Low|
How to compare 12-month loans
If you decide that a 12-month loan is right for you, here’s what to consider.
- Borrowing costs. How much will you have to pay to borrow the money? Check the annual percentage rate (APR) and compare interest costs between lenders. Further, check for any and all fees the lender charges. That includes origination, late payment, pre-payment, etc.
- Repayment terms. Find out what the repayment terms entail. Will you make one payment per month, or two, or more? Can you pick your payment date? Ensure that you can meet the terms.
- Customer service. Read reviews to find out how happy past customers are with the lender.
- Ease of access. How easy and accessible does the lender make the funds? Can you apply online? Get approved quickly? Have the money deposited into your account within days? Some lenders will be more convenient than others.
Shop around to find the lender that offers the best overall value. To find out what you can actually qualify for and compare offers side-by-side, click here.
Jessica Walrack is a personal finance writer at SuperMoney, The Simple Dollar, Interest.com, Commonbond, Bankrate, NextAdvisor, Guardian, Personalloans.org and many others. She specializes in taking personal finance topics like loans, credit cards, and budgeting, and making them accessible and fun.