Pros & Cons of Opting Longer Tenures on Personal Loans

Opting for long-term personal loans can ease your monthly burden and meet your financial needs without troubling your funds. However, is it correct to lock yourself into a long-term commitment with the lending institution? Let us first understand the basics of opting for repayment tenures on personal loans.

Personal loan comes with no end-use restriction, which means there are no restrictions on the consumer on its usage besides speculative activities. Depending upon the desired loan amount and tenure, personal loans can be opted as short-term or long-term. Visit Paisabazaar to check and compare the personal loan interest rates and tenure options from leading banks/NBFCs.

Avail personal loan as per your financial needs and requirements, as short-term personal loans with tenure up to 12 months offer lower interest rates but high EMIs, whereas loans with tenure up to 6 years incur high total interest. Further, let us discuss about the pros and cons of availing longer tenure on personal loans:

Pros of Longer Tenure Personal Loans

Lower EMIs

Longer repayment tenures reduce the monthly instalment amount, making it easier for you to manage your monthly finances without much burden or stress. It also helps in managing your monthly budget more efficiently.

Reduces the Risk of Default

If you opt for longer repayment tenure, it helps in reducing the risk of missed payments and penalties because smaller EMIs can be managed comparatively easily, as compared to higher EMIs.

Improves Cash Flow and Financial Flexibility

Choosing longer tenure can help in improving your cash flow and retain more disposable income for other financial commitments, such as daily household expenses, investments, medical emergencies or any other urgent need.

Builds your CIBIL Score

If you plan to pay lower EMIs for longer tenure without any delay, it usually helps in building your credit score. With improved CIBIL score, even the chances of loan approval increases.

Easier to afford Larger Loan Amounts

During your existing loan tenure, you might require to avail another loan to fulfil personal or family commitments. Therefore, long-term personal loans make it easier and affordable for you to afford loans of larger amounts. Moreover, you can avail top-ups on existing loans because of your improved credit score and longer relationship with the existing bank/NBFC.

Cons of Opting for Longer Tenures on Personal Loans

Higher Total Interest Payments

Personal loans with longer tenures increase the total interest payouts means you tend to pay more interest rate making your loan overall costlier.

Reduced Eligibility for New Loans

Longer tenure loans may affect your Net Monthly Income (NMI)/EMI ratio, which can further lead to reduced chances of getting additional loans approved during the loan tenure. The loan with longer tenure can limit your other borrowing opportunities.

Higher Interest Rates

It has been observed that few lenders charge slightly higher interest rates for longer-tenure loans because of higher risk of missed or delayed payments or even default in some odd cases.

Possibility for Overborrowing

Long tenures may entice borrowers to take loans of larger amounts than needed due to lower EMI amounts, leading to excessive or unmanageable debt.

Potential Financial Stress

Managing consistent EMIs over several years requires consistent financial discipline, which can be challenging in the long run. 

Things to Consider:

It is highly recommended that while selecting a personal loan tenure, consider various factors, such as your financial situation, income stability and future aims. While selecting the repayment tenure, also consider factors, such as foreclosure/prepayment charges to optimize your cost. If you can afford higher monthly payments and want to minimize interest costs, a short-term loan may be the appropriate option. Eventually, it all depends on your ability to manage debt; moreover, how long you are comfortable in taking the financial burden.

Considering all the pros and cons of longer tenure, and further it is up to you which tenure to decide shall suits you best.