Let’s walk through tenure aspect of Personal Loans in this article. You can Apply for Personal Loans starting from 1 year to 5 years as per needs. Your EMI will reduce if you apply for long term loan, yet the overall cost of loan will rise. So choose wisely, and apply for long term loans or short term loans as per your financial health.
Long Term Personal Loans – Pros
Loan Amount
Size of EMI
When you apply for long term loan, the size of EMI falls. Thus, you can still pursue your dreams, despite cash crunch with the help of a Long Tenure Personal Loan. Let’s walk through how loan EMIs change, as you change the loan tenor.
Loan Details | EMI (Rs.) | Total Interest Payable (Rs.) |
Rs 1 Lakh for 12 months @ 10.99% |
8, 838 |
6,052 |
Rs 1 Lakh for 24 months @ 10.99% |
4,660 |
11,848 |
Rs 1 Lakh for 36 months @ 10.99% |
3,273 |
17,842 |
Rs 1 Lakh for 48 months @ 10.99% |
2,584 |
24,035 |
Rs 1 Lakh for 60 months @ 10.99% |
2,174 |
30,425 |
As we saw in this table, a long term will considerably cut the size of EMI, however as you serve the loan for longer term, the overall cost of interest rises. Even with a lower rate of interest, an overall cost of loan will be higher for a longer tenure. Thus, extend loan tenure only when you are unable to afford a lower tenure loan for your aspirations. It is always recommended to opt for shortest possible loan duration and lower Personal Loan Interest Rates.
Foreclosure
Personal Loans generally have a foreclosure cost attached. The foreclosure fee can range up to 4% of the outstanding principal amount. Most lenders have a timeline capping attached for foreclosure. In long term loans, the prepayment fee is substantially reduced after completion of 24 months of EMIs. While the same benefit is not available for small loans up to 2-3 years.
Collateral
Personal Loans are unsecured loans and thus do not require any collateral or loan security. Thus the eligibility for loan is purely assessed basis your credit score, age, income & debt to income ratio. However by pledging collateral with the bank, such as in case of Loan Against Property, you can avail of a low interest loan for higher amount and that too for longer duration. Thus it is recommended to opt for a secured loan if you need a long term Personal Loan.
Improves Credit Score
When you serve a Long Term Instalment Loan earnestly you Build your Credit Score. A good track record of repaying a loan always helps your credit rating. The lenders always want to lend to customers who have exhibited good repayment history in the past.
Long Term Personal Loans – Cons
Limits your credit eligibility
Before approving your loan application, a lender always assesses your current debt to income ratio. By availing of a Long Term Personal Loan, your credit limit thus remains exhausted and affects your eligible for further loans. Also, it can get financially stressful to meet multiple EMIs in the month for several years. Thus before opting for a Long Term Personal Loan, you should carefully do the involved maths and assess your present income, cash flows & back up funds.
Overall Cost of loan escalates
By extending the tenure, you basically expand the overall cost of the loan. It is thus recommended to not stretch out loan tenure if you can afford a shorter one.
Tax implications
If you compulsively want to borrow for longer tenure, it is recommended to explore other options as as per the purpose of loan. For instance it is advisable to opt for Education Loan and Home Improvement Loan for financing higher education and home repair or extension respectively. You will enjoy associated tax benefits on these loans.
All in all, you must do your research before contacting a lender. It is advisable to compare various deals and choose the best Personal Loan.
Also Read: Credit Card Loan: A Preapproved Facility for Urgent Cash Needs
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