Five years is one of the most common loan terms because it offers manageable monthly payments without excessive interest accumulation. It's especially popular for auto loans and mid-sized personal loans. Compare the total interest to a 3-year term to see if the lower monthly payment is worth the extra cost.

At 7% interest, a $20,000 loan over 5 years would cost approximately $3,761 in total interest with monthly payments around $396. The exact amount depends on your specific rate and whether you make any extra payments during the loan term.

You can effectively shorten your loan term by making extra payments toward the principal, which reduces the total interest and pays off the loan faster. Some lenders also allow formal refinancing into a shorter term. Check your loan agreement to ensure there are no prepayment penalties before doing so.