The tenure of your personal loan tenure has a big impact on the overall borrowing cost of the borrowers, along with the interest rate. Most lenders offer a personal loan tenure of up to 5 years. However, a few banks may offer a longer loan tenure of up to 7 years. A longer tenure results in lower EMIs but high interest cost, whereas a shorter tenure results in low interest cost but higher EMIs. Borrowers need to find the right balance between choosing a short tenure that reduces the total interest outgo and a manageable EMI that does not adversely impact their financial lives.
Borrowers should never use their emergency fund or investments earmarked for financial goals and future expenses, to pay their EMIs. It is essential to choose an optimum loan tenure while availing personal loans.
How To Choose an Ideal Tenure- Tips and Strategies
Evaluate your Current Financial Situation
To avail a personal loan, the EMI/NMI ratio of the applicant should be around 55%, including the EMI of the new personal loan. Anything over this, may lead to rejection of the application. Individuals should first assess their monthly income and expenses, calculate their total EMI obligation, before opting for a repayment tenure. This will help them to determine their affordability and the amount they can contribute towards their EMI without compromising their monthly financial obligations, thereby, opting for a longer or shorter tenure as per their accordingly.
Calculate the EMI and Interest Cost
Applicants should calculate the total EMIs and interest cost before opting for a loan tenure using a personal loan EMI calculator. If the EMIs are manageable, applicants can choose a shorter tenure resulting in reduction of interest cost. In case the EMIs are higher enough to disturb the monthly expenses, applicants may opt for longer tenure. In this case, they may keep prepaying the loan amount whenever they have surplus funds.
Conclusion
Selecting a loan tenure is one of the most important decisions while availing a personal loan. Therefore, it is very important to consider the loan affordability, financial goals, monthly expenses, net monthly income, etc. before opting for a loan tenure. Choosing an ideal repayment tenure allows the applicants to repay the loan amount without any default thereby maintaining the credit history.
