One of the major decisions to be made while applying for a personal loan is choosing the loan tenure. Most lenders offer options starting anywhere between a short period of 12-24 months to as long as a considerably long period of up to 84 months. But is opting for the personal loan maximum tenure always the best choice? Let’s explore its impact, benefits, and drawbacks to help you make an informed decision.
Pros and Cons of Opting for Maximum Loan Tenure
Opting to have a longer payment period may be helpful or harmful, depending on what one seeks to achieve with this. Considering the pros and cons of the following, the major factors will explain this case a bit more clearly.
Pros
- Smaller Monthly EMIs: The longer the tenure is, the lesser the EMI and hence manageable.
- Less Financial Burden: Helps borrowers retain liquidity for other uses or investment opportunities.
- Ease of approval: The lenders sometimes approve a higher amount, too, in cases when the applicant chooses a longer period for their loan tenure.
Cons
- Higher Interest Costs: The longer you take to repay, the more the interest is accrued.
- Extended Debt Obligation: Carrying a loan for several years can have a bearing on financial planning.
- Limited Future Borrowing Capacity: An extended tenure impacts creditworthiness for future loans.
Choosing the Right Loan Tenure
The proper tenure of the loan depends on many factors:
1. Monthly Income and Expenses: Ensure EMI payments are within a comfortable limit.
2. Existing Debt Obligations: Factor in other EMIs or liabilities before choosing tenure.
3. Financial Goals: If reducing overall interest is the priority, opt for a shorter tenure.
4. Future Earnings Prospects: If there is a case of salary increments or other forms of bonuses, then one can consider shorter tenures.
5. Loan Prepayment Options: A long tenure would be helpful with prepayment being possible.
Loan Tenure and Impact on EMI and Total Interest: A Relative View
The personal loan maximum tenure ranges from merely a few months up to several years, depending upon the lender and borrower’s eligibility. The tenure that you select can make a big difference in the monthly installments you pay or EMI since it will influence how much interest is paid in total over the loan period.
Let’s take the two variants of a case when taking a personal loan availed of ₹ 5,00,000 at an interest rate of 12% per annum:
Following is the impact of loan tenure in EMI and total interest:
| Amount Lend(₹) | Interest Rate(%) | Tenure(in Years) | EMI (₹) | Total Interest Paid(₹) |
| 5,00,000 | 12% | 3 | 16,607 | 97,858 |
| 5,00,000 | 12% | 5 | 11,122 | 1,67,333 |
| 5,00,000 | 12% | 7 | 8,826 | 2,41,415 |
From this data, while longer tenures ease EMI burdens, they also lead to higher total interest payments.
Top 5 Errors While Choosing the Loan Tenure
1. Selection of Long Tenure without Calculating Cost of Interest
A decreased EMI level can be very enthralling in words, but essentially it will give a long time for repayment, largely enhancing the cost of the whole loan.
2. Ignoring Future Income Growth
A large number of borrowers are going to overlook likely growth in their salary and, hence, choose longer tenures without any rhyme or reason.
3. Not Considering Loan Prepayment Options
If the loan allows prepayment, then a shorter tenure and the facility for occasional lump-sum payments will bring potential interest rates down in the long run.
4. Focusing on the Affordability of EMI Alone
As attractive as a small amount of EMI may sound, it must not come up with the price of paying heavily on interest.
5. Neglecting Other Financial Goals
Long-term debt commitments may dent other investments, emergency fund savings, or housing purchases.
Prepayment and Foreclosure in Loan Tenure Decisions
Loan prepayment and foreclosure can be defined as the rights of borrowers to repay loans before the end of tenure to lessen interest burdens. Some of the major factors to be considered are:
- Prepayment Charges: A few lenders charge for early repayments.
- Savings on Interest: The part paid in advance in this loan reduces the overall interest levied.
- Foreclosure Benefits: Paying off the loan early increases credit score and credit scores mean greater borrowing power.
Future Financial Planning: Loan Tenure vis-a-vis Your Goal
The personal loan maximum tenure also makes a lot of difference when it comes to long-term financial planning. In cases where the tenure is selected for buying a house or investment for business expansion, keeping the EMIs for a personal loan low could be effective through longer tenures. In case a borrower wants to get rid of debt ASAP, a smaller tenure will help.
Summary
The personal loan maximum tenure depends on your financial goals and monthly cash flow, besides the total interest you can bear. In Stashfin, you will have flexible repayments for up to 36 months with minimum documentation and fast disbursal. Always weigh the different tenure options available before making your final decision whenever you consider taking a personal loan. Indebtedness itself, if well managed and regulated, with informed choices taken, can keep within the margin of control and reach financial stability.
Frequently Asked Questions
How does this loan tenure affect the monthly payments?
The personal loan maximum tenure is inversely proportional to the monthly EMIs. Though a long tenure reduces the burden of EMI, the overall interest payable will increase in due course.
What is considered to be an ideal tenure for a personal loan?
The ideal tenure shall depend upon your repayment capacity. In case you can afford higher EMIs, shorter tenures should be considered to be ideal in your case, while on the other hand, for lower month-to-month commitments longer tenures will do exactly the work intended.
Can tenure be changed after availing of the loan?
Yes, some lenders will do so but the modification shall mean refinancing/ restructuring with additional charges to be imposed or charged by any lender for services availed or provided thereof, accordingly.
