A Guide to Help You Choose the Best Personal Loan Tenure

Personal loans are becoming increasingly important amongst borrowers when it comes to funding their urgent expenses. The loan amount can be used to finance expenses like weddings, medical bills, home renovations, and so on. As you apply for a personal loan, you should know about the personal loan maximum tenure. 

When you are aware of the personal loan tenure, it helps you understand the affordability aspect easily. The tenure is the number of months or years you have to repay the loan amount. 

Usually, banks or lending institutions offer personal loans with a maximum tenure ranging between one year and five years. The personal loan maximum tenure you choose will affect your EMIs and the total interest rate on the given loan. Therefore, it is recommended to choose the right loan tenure when you apply for a personal loan. 

What is a Personal Loan Tenure?

When you wish to understand the personal loan maximum tenure, it refers to the amount within which you are expected to repay the loan amount. This tenure also includes the applicable interest on the initial loan amount that has been agreed upon with the loan provider. 

The loan tenure is depicted in the form of either months or years. For example, a personal loan of INR 5 Lakhs has been taken for 36 months or 3 years. Depending on the given loan tenure, your EMIs are calculated. You pay these EMIs toward the principal and the interest rate every month. 

Usually, the maximum loan tenure in India ranges from one year to five years. When you have a larger loan tenure, it will eventually spread out the loan repayment window over a longer period. Eventually, this will minimize the EMI amount. On the other hand, shorter loan tenures depict higher EMI amounts, and you are expected to repay the loan amount faster.

What is the Ideal Loan Tenure for Personal Loans?

There is a common misconception that a longer loan tenure is better for personal loans. However, this might not be the case. The ideal loan tenure will depend on different factors. These could be:

• Use of the Loan: In case you have a short-term emergency or expense, you can apply for a short-term loan. On the other hand, for longer projects or emergencies, like a home renovation, you can choose long-term personal loans.
• Interest Payable: For a long loan tenure, the interest payable for EMIs can vary. It is important to observe the loan tenure and its interest payable according to your budget. 
• Interest Rate on the Loan: Longer loan tenures will imply paying interest rates for a longer period overall. Therefore, if you have a high interest on your personal loan, you can choose short-term personal loans. 
• The Repayment Capacity: Depending on your income, existing EMIs, and overall expenses, you should calculate the EMI you will be able to pay comfortably each month. You should avoid unnecessarily extending your repayment capacity to the limit. 

How Does the Loan Tenure Affect the Interest and EMIs?

The maximum loan tenure plays an important role in determining the EMIs and the interest rate on the personal loan. For instance, a longer loan tenure will result in reduced EMIs. As such, your repayment becomes more manageable. At the same time, a longer tenure also implies that you will be paying the interest rate for a longer time. This would eventually increase the total cost of the loan.

A shorter tenure of the personal loan will lead to higher EMIs. However, it tends to minimize the overall interest rate paid. Therefore, a personal loan with a shorter tenure is considered more cost-effective. 

When you are choosing the loan tenure, you need to consider both affordability and cost-effectiveness. If you like reduced EMIs, you can choose long-term personal loans. If you wish to save on the overall interest, you can choose a short tenure for your loan. 

Choosing the Right Loan Tenure

Here are some tips to choose the right loan tenure for your overall peace of mind:

• Understand Your Financial Condition

Before you choose a loan tenure, you should look into your financial condition. Analyze your monthly income, existing financial obligations, and overall savings. With a short-term loan, you will have higher EMIs. But you will be able to clear the loan amount easily. 

• Look Into Interest Costs

Another major consideration while choosing the loan tenure is the interest costs. Loans having a longer tenure will have lower EMIs. Still, they will collect more interest over time. Eventually, this will increase the total cost of borrowing. 

On the other hand, shorter loan tenures will lead to higher EMIs. But they also depict reduced interest payments. If you wish to save on the overall interest, you should choose a short loan tenure for better savings.

• Go Through the Lender’s Policies

Different lenders will offer different interest rates and loan tenure options. Some institutions might offer short-term loans. On the other hand, some lenders might have flexible repayment options that can be spread out across longer durations. In addition to this, you should also check out the prepayment charges that might affect your repayment capacity.

• Loan Flexibility and Prepayment

If you are expecting a raise in your salary or some extra income in the coming time, you can choose a short-term loan with prepayment options. Some lenders allow foreclosures or prepayments with almost no penalty. 

Conclusion

It is important to choose the right loan tenure to improve your financial well-being. A shorter loan tenure will help you repay the loan amount faster. However, it comes with higher EMIs. On the other hand, a longer loan tenure will minimize your monthly costs. To be informed of the right choice, look into your salary, financial goals, and overall expenses.