Money Management

When you get a personal loan, you’ll need to make a decision about how long of a loan term you want. Here’s how you can decide. 

When you take out a personal loan, you need to decide how long your loan term will be. Most lenders offer a choice, and your repayment timeline could typically be anywhere from one to seven years, although this varies by lender.

So, how long should you take to repay your personal loan? Here’s what you need to consider to decide.

Your term length affects monthly payments and total borrowing costs

When you take out a personal loan and decide on your term length, you need to realize that there’s a tradeoff. You can have lower monthly payments coming out of your bank account each month if you opt for a loan with a long payoff timeline. However, that long payoff time means you pay interest for a longer time so you spend more in total to borrow.

On the other hand, you could choose a shorter payoff timeline. By doing so, you’d be committing to higher monthly payments and less flexibility in your monthly budget. But you would pay interest for a shorter period so you spend less in total to borrow.

Just how big is the difference in monthly payments and total payoff costs? The table below shows what you’d pay at different loan term lengths if you borrowed $5,000 at a 10% interest rate.

As you can see, there’s a dramatic difference in monthly payments and total interest costs over time. If you could repay your loan after just a year, you’d end up paying $1,697.55 less in interest compared with if you took seven years to become debt-free. But your monthly payments would be $356.57 higher!

So what loan term is right for you?

Unfortunately, there isn’t one right answer to the question of how long your personal loan term should be. Different people have different priorities.

If accepting a large monthly payment would mean you couldn’t pay for essentials like rent or retirement savings, obviously you would be better off with a longer loan term even if that meant you paid more interest. On the other hand, sending thousands of dollars extra to your creditor over time is money you won’t have for other financial goals.

RELATED: Personal Loan Calculator

For most people, the best loan term is the shortest one that comes with payments they can comfortably afford. However, if you prioritize flexibility in your budget instead, you might want to opt for a longer payoff time — and then make voluntary extra payments when you can.

Just be sure you look at both total payoff costs as well as monthly payments and decide how best to balance the competing goals of keeping total financing charges down while avoiding a monthly payment you can’t really cover.

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There are certain financial milestones that just about everyone should check off their to-do list. Find out if you’ve hit these milestones yet. 

Setting financial goals is often a personal process. Your desires may differ from those of other people. You may want to buy a home, for example, while someone else might want to rent and save up a huge travel fund.

While goal-setting needs to be done on an individual basis, there are three financial milestones just about everyone should try to achieve. Here’s what they are.

1. Becoming debt-free

Debt impairs your financial freedom. Everyone should aim to pay off their debt.

If you owe money, you’ll have a monthly payment you’re committed to making. As long as that payment exists, your income isn’t your own and you have less available for other financial goals. Plus, you’ll also be paying interest to a lender, which is money you simply lose as it goes to make your lender richer instead of helping you accomplish other financial objectives.

Some debts you should try to pay off right away because the interest costs are so high, like credit card debt. Others, it may not make sense to pay off early, such as a mortgage at a low rate since you can often get a better return on your money by investing it.

But even if you’re not paying extra toward your debt, your long-term goal should be to own your assets outright and not owe money to anyone. This is a key step in eventual financial freedom since you can’t be free while you still owe others.

2. Saving enough for retirement

Saving enough money for retirement is another crucial goal everyone should fulfill. Eventually, everyone will need to stop working and, when they do, they’re going to need money from a brokerage account or other investment account to live on.

See, Social Security retirement benefits are only meant to replace about 40% of pre-retirement income. It’s virtually impossible to maintain anything close to the standard of living you’re used to while taking a 60% cut to your income. You’ll typically need at least 80% to 90% of your pre-retirement money to live a comfortable life as a senior, so around 40% to 50% of that has to come from savings.

To figure out how much to save for retirement, assume you’ll need about 10 times your final salary invested. You can figure this out by taking your current salary and adding a 2% raise from now until your projected year of retirement. Then multiply that number by 10 to see how much you’ll need. From there, use the Investor.gov calculator to see how much you need to save monthly to reach that goal.

If you hit this target and save enough for your future, you can enjoy your golden years free of financial worries. That’s something everyone should aspire to.

3. Having a three- to six-month emergency fund

Finally, the last goal everyone should try to achieve is having an emergency fund with three to six months of emergency expenses in it.

Emergencies can and do happen to everyone. In fact, Pew Trusts found about 60% of households had experienced a financial shock in the prior year. Having an emergency fund can turn these financial shocks from a crisis into a mere annoyance since you have the money to pay for them.

To make sure you have enough emergency savings, open a high-yield savings account and set up automatic transfers to it each month of as much as you can afford. You can also save windfalls like tax refunds or cash birthday gifts until you have three to six months of expenses saved.

RELATED: Emergency Fund Calculator

By achieving these three milestones, you’ll be well on your way to a financially secure future. Get started working toward them today!

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Christy Bieber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Target. The Motley Fool has a disclosure policy.

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Florida’s homeowners insurance prices have soared over the past two years. Read on to find out how you can potentially lower your insurance premium. 

If you’re a homeowner, it’s probably no surprise that the cost to insure your home has climbed over the past couple of years. On average, homeowners insurance is now 35% more expensive than it was two years ago, according to a Policygenius survey.

But there are a couple of places where the cost has skyrocketed far more than in other locations. And the biggest increase by far has been in Florida — which has seen homeowners insurance prices soar 68% over the past two years. Data from USA Today shows the annual cost of homeowners insurance is between $1,117 to $2,950.

Here’s why prices are rising rapidly across the country and what you can do to help lower your homeowners insurance premium.

Why homeowners insurance is so expensive now

It’s easy to assume that the rapid increase in inflation over the past couple of years is causing homeowners insurance premiums to go up. And while that may be part of the reason, it’s certainly not the whole picture.

Here’s why insurance prices are surging in several locations across the country, according to Policygenius:

More climate-related disasters: The number of weather events that caused at least $1 billion in damage more than doubled between 2010 and 2019 compared to the previous decade.Construction prices have soared: The cost to fix and replace damaged homes has risen quickly because of inflation and supply-chain issues. Residential construction prices have spiked 34% since March 2020.Insurance companies have left some markets: Insurers have pulled out of many states because it isn’t financially viable, and the ones that stay have increased prices.

How to help lower your homeowners insurance costs

While there’s no getting around the fact that insurance prices have spiked across the country, there are a few things you can do that may help lower your costs.

First, you can assess your coverage to ensure you’re not paying for anything you don’t need. Some potential areas to look at are personal property insurance, liability coverage, and loss of use. Taking a few minutes to figure out whether you need these optional coverage options could help you reduce your insurance premiums.

Second, compare quotes to find the best homeowners insurance for you. Insurance companies have different methods of setting their prices, offer varying discounts, and may have criteria for issuing policies.

Only 13% of respondents regularly shop around for homeowners insurance. But for those who switched providers, 39% said they did so because they got a better price, according to a Consumer Reports survey.

Shopping around may help you find cheaper homeowners insurance, and, if nothing else, looking at a few quotes will show you whether you’re overpaying for your current policy. You can also check out a list of the cheapest homeowners insurance by state.

If you shop around and can’t find anything cheaper, it may be worth looking at your current policy and deciding what you can change. That may mean increasing your deductible or taking a closer look at the potential discounts your insurance provider offers.

Unfortunately, there isn’t any indication that homeowners insurance prices will come down soon. That’s why it may be more important than ever to find ways to lower your premium right now. If you’re struggling to pay your insurance premiums, consider assessing some of the minimum requirements for homeowners insurance to see if you can scale your coverage back.

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It’s important to find a home that offers ample space. Read on to see why. 

There’s a reason first-time home buyers are often encouraged to purchase a starter home — a smaller property that may not be so updated. Starter homes tend to be less expensive, which means a smaller mortgage payment every month. These homes tend to require less maintenance, which is a good way to ease into homeownership.

This past June, the typical starter home sold for $243,000, according to Redfin. But the cost of a starter home in your area may be higher or lower.

You may be eager to buy a starter home yourself. But be very careful when going that route, because you don’t want to buy a home you’re likely to quickly outgrow for one big reason.

Finding the right starter home is key

Many people buy a starter home with the intent to upsize a few years later. The logic is that those starter homes allow them to build equity so that down the line, they can afford a more expensive property.

That logic certainly makes sense. And it’s not a bad idea at all to buy a starter home with the intent to stay for five years or so, build up some equity, and then take on a more expensive home and mortgage loan once you can afford to do so.

But that plan generally hinges on you being in your starter home for several years. The reason? It commonly takes time to build equity in a home. Granted, people who bought homes in 2019 or 2020 might’ve seen their values soar in a couple of years due to the explosive demand that hit the real estate market when mortgage rates plummeted. But the typical buyer should not expect to purchase a home and then see its value skyrocket within a year or two.

Rather, that process tends to take time. And that’s why it’s important to be careful when buying a starter home. If you outgrow that property in a year or two, at that point, you may not have enough equity to go out and upsize.

So, let’s say you come across a two-bedroom starter home as a family of three (two adults and an infant). If you have plans to have two more children in short order, you may want to reconsider a home that size, since you might need more than those two bedrooms within a couple of years. And you may not end up with enough equity to upsize to a larger home as soon as you need to.

Make sure your home aligns with your plans

Plenty of people buy homes — starter or otherwise — before completing their families. But if you’re looking at a starter home, consider your plans on the family-building front before committing to a purchase.

It’s probably not the best idea to buy a home you’re very likely to outgrow within a couple of years. But if you think the home you’re looking at will serve your family’s needs for five years or more, then it could end up being a great buy for you.

Meanwhile, there are certain home features you can look out for that may reduce your risk of outgrowing it quickly. A home with an unfinished basement might fit that bill. Yes, finishing up that space costs money, but the option exists if you need it. Similarly, if you buy a home with a larger garage, you could conceivably add on a bedroom and just park your car outdoors.

You don’t necessarily need to limit yourself to a specific number of bedrooms or a specific amount of square footage. But it is important to try to find a home that gives you some leeway.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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