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Shorter term

Higher monthly payments,  typically lower interest rates, lower total cost.

 

Longer term

Lower monthly payments, typically higher interest rates, higher total cost

 

In general, the longer your loan term, the more interest you will pay. Loans with shorter terms usually have lower interest costs but higher monthly payments than loans with longer terms. But a lot depends on the specifics – exactly how much lower the interest costs and how much higher the monthly payments could be depends on which loan terms you're looking at as well as the interest rate.

 

What to know

Shorter terms will generally save you money overall, but have higher monthly payments.

There are two reasons shorter terms can save you money:

1) You are borrowing money and paying interest for a shorter amount of time.

2) The interest rate is usually lower—by as much as a full percentage point.

 

Rates vary among lenders, especially for shorter terms. Explore rates for different loan terms so you can tell if you're getting a good deal. Always compare official loan offers, called Loan Estimates, before making your decision.

 

Some lenders may offer balloon loans. Balloon loan monthly payments are low, but you will have to pay a large lump sum when the loan is due.