Personal loans come handy for many during the financial emergency or when someone wants to fulfill their dreams that need capital funding. Starting from Rs. 10,000 to Rs. 40 lakh personal loans are offered by many banks and NBFCs and digital lenders.
They offer flexible end use and repayment tenure that usually varies from a year to 5 years. The question to choose a short tenure (1 to 3 years) or long tenure (3.5 to 5 years) is debatable. Though almost all the lenders offer the privilege to choose the loan tenure as per your repayment ability, it is necessary to be careful while choosing the right tenure.
Pros of Long- Term Personal Loan
- Reduces repayment burden: If you have other existing loans or wish to keep your monthly installment as low as possible, choosing a personal loan with a longer tenure (4-5 years) is the right choice for you. The longer the loan term, the shorter would be your EMIs
To calculate how much your monthly EMIs are going to cost during the tenure that you choose, you can take help of Paisabazaar’s Personal Loan EMI Calculator. Let us assume that you are planning to take a personal loan of Rs. 10 lakh with an interest rate of 10.99%. Look at the amortization table below and understand how the EMI calculator can help you to know the tenure that is right for you and how choosing a longer tenure reduces the EMI
- Improves loan eligibility: Before sanctioning you the desired loan amount, the lenders check your monthly income and other criteria to ensure that you will be able to repay the loan without any delay. When you choose a longer tenure, your EMI gets minimized and the lender easily sanctions a higher loan amount as the chances of defaulting on your loan payment decreases
- Pre- closing the loan: Most of the lenders offer the option of pre- closing the loan before the tenure ends along with a minimal fee of 1-2% of the remaining outstanding loan balance. Therefore, opting for a longer tenure will not only help you to save money every month but you can also pre- close the loan before the tenure ends
- Improves credit score: If your credit score is way below 750 and you wish to use your personal loan to improve it, then a long- term personal loan would be the best for you. As, making consistent repayments without any delay every month can significantly improve your credit score
- Makes you eligible for top- up loan: Top- up loan facility is offered by many lenders after an individual completes a fixed period in his tenure. Usually, an individual becomes eligible for a personal loan top- up after paying 12 EMIs. Therefore, if your tenure is longer, you have more chances of being eligible for a top- up loan
Cons of Long- Term Personal Loan
- Pay higher interest: The main disadvantage of going for a longer tenure is that you pay more interest over the course of your tenure. Interest rates on a personal loan are usually higher as compared to secured loans like car or a home loan and if you accumulate interest for a longer period, you will repay much more than you have borrowed
- Debt- bearer for longer period of time: The longer the tenure, the longer you will remain in debt. This means, you will be debt- burdened and would have to remain disciplined with your repayments for longer period of time
- Decreases eligibility for new loans: The loan eligibility of an individual is mainly based on his repayment ability. If you already have an existing loan, your eligibility for a new loan decreases as the lenders before sanctioning another loan ensures that the total payable each month should not be more than 50% of your net monthly income
Top 5 Banks and NBFCs Offering Long- Term Personal Loan
|Bank||Interest Rate||Tenure||Loan Amount||Processing Fee|
|SBI||Starting from 11%||6 to 71 months||Upto Rs. 20 lakh||Upto 2% of loan amount plus GST|
|HDFC Bank||15.50% to 21.50%||12 to 60 months||Upto Rs. 40 lakh||Upto 2.50% of the loan amount plus GST|
|ICICI Bank||11.25% to 22.00%||12 to 60 months||Upto Rs. 20 lakh||Upto 2.25% of loan amount plus GST|
|Axis Bank||16% to 24%||12 to 60 months||Upto Rs. 15 lakh||Upto 2% of loan amount plus GST|
|Bajaj Finserv||Starting from 12.99%||12 to 60 months||Upto Rs. 25 lakh||Up to 3.99% of the loan amount plus GST|
Tenure of a loan decides the amount that you would be paying for availing a personal loan. Therefore, choosing the right tenure is an important decision and should be taken after going through both the pros and cons of a long term personal loan. Whatever loan tenure you choose, just prepare yourself for the repayment period and repay on time to stay away from additional charges and inconvenience.