19 Oct Long-Term vs Short-Term Personal Loans in SA

Choosing how much to borrow is only half the decision. How long you take to pay it back matters just as much, because the loan term shapes both your monthly instalment and the total you hand back to the lender.

At Loan Wave, our online personal loans run from R5,000 to R350,000 over 6 to 60 months, so there is real room to choose. Here is how longer and shorter terms compare, and who each one suits.

What Counts as a Short-Term or Long-Term Loan?

There is no single legal label for a long-term personal loan, but in practice terms toward the 60-month end of the range are considered long term, while terms of a few months up to two years are considered short. Under the National Credit Act, a short-term credit transaction has a specific meaning: a small loan of up to R8,000 that is repaid within six months. These loans, often called payday loans, are priced differently from a standard personal loan.

Our guide to what to know before applying for a short-term or payday loan covers them in more detail.

How Longer Terms Lower Your Monthly Repayment

Spreading a loan over more months divides the capital into smaller pieces, so each instalment is lower. That can make a bigger loan fit comfortably into your monthly budget, which is why long term unsecured personal loans are popular for larger expenses such as a renovation, a wedding or a major repair.

Because large unsecured personal loans carry more risk for the lender, we first look at your income and existing commitments, and we only approve a loan when you can afford the repayments.

Why a Longer Term Costs More in Total

Interest is charged on the balance you still owe, for every month you owe it.

The longer the term, the more months of interest you pay. If you want the detail, read how interest is worked out on a personal loan. Here is an illustration using a R50,000 loan at an example rate of 20% a year, before fees:

• Over 24 months: about R2,545 a month, with about R11,075 paid in interest.
• Over 60 months: about R1,325 a month, with about R29,480 paid in interest.

The longer term nearly halves the monthly instalment, but it adds roughly R18,400 to the interest bill. This example rate is for illustration only and is not a Loan Wave quote. Your own rate depends on your credit profile and the amount you borrow.

Who Should Choose a Longer Term

• You need a larger amount and want an instalment that sits comfortably in your budget.
• Your income is steady enough to carry the loan for the full term.
• You want a bigger safety margin each month. If your circumstances improve, you can ask about settling early, so check your pre-agreement quote for any early settlement terms.

Who Should Choose a Shorter Term

• You can manage a higher monthly instalment and want to pay less interest overall.
• You are covering a smaller, one-off need. Our guide to smart ways to use a short-term loan shows where this works best.
• You would rather be debt-free sooner, so you are free to take on other goals.

How to Choose the Right Term

Start with your budget, not the loan. Work out the highest monthly instalment you can pay comfortably after your essential expenses, then choose the shortest term that fits under it. Ask for the total cost of credit, including the initiation and monthly service fees, not only the instalment.

If you are juggling several small debts, one loan with a single instalment can be simpler, as we explain in why one big loan can beat several small ones. And if you would rather not put up an asset, unsecured personal loans in South Africa explains how our no-collateral loans work.

There is no universally right term, only the one that matches your budget and your goals. As a lender registered with the National Credit Regulator, Loan Wave assesses every application individually. Whether you need a few months or a few years, you can apply online.