Why is Personal Loan Tenure Important and How to Choose it?
Personal loans are excellent credit options that provide quick access to funds. There’s no end use restriction, meaning, you can use a personal loan to meet any financial need. However, the interest rates are slightly on the higher side. That’s why personal loan tenure plays an important role – determining the loan EMI amount and helping borrowers repay the loan without major hiccups.
This article helps you understand the personal loan maximum and minimum tenure and the importance of choosing a loan tenure carefully. Read on!
What is a Loan Tenure?
A loan tenure, also known as repayment tenure, is the time period between the date of disbursal of your loan amount and the payment date of your last EMI. For example, if you took out a loan on January 10 2022, and paid your last EMI on January 10 2024, your loan tenure is of 2 years.
Loan tenure can be of two types:
- Personal Loan Maximum Tenure: The maximum tenure of a personal loan can go up to 5 years.
- Personal Loan Minimum Tenure: A personal loan tenure can be a minimum of 6 months.
The repayment period depends on various aspects of the loan as well as the borrower’s financial capabilities. Additionally, it depends on the lender as well.
How to Choose a Personal Loan Tenure?
Most lenders offer flexible loan tenure for personal loans. You can choose from a tenure of 6 months to 5 years. This depends partially on the lender. As a borrower, you should assess your repayment capabilities to decide your loan tenure.
Here are the factors you can consider checking before arriving at a decision:
1. Monthly Income
Your monthly income is one of the key aspects to consider while choosing loan tenure. It helps to calculate the amount you can pay on a monthly basis towards the payment of your EMI.
2. Loan Amount
Your loan amount has a significant impact on your loan tenure. For a small personal loan amount, you might want to choose a shorter tenure as longer tenure puts on a higher burden of interest. Similarly, you may choose a longer tenure for a larger amount as shorter tenure might be financially heavy on you.
3. Interest Rates
The interest rate applicable on your personal loan depends on your credit score, and it also decides your eligibility. Other than the Credit Score, your selected loan tenure also influences the interest rate.
Usually, a lower credit score attracts a higher rate of interest. If you get offered a high interest rate, you should choose a longer tenure as missed payments will negatively affect your credit score.
Similarly, if you have a good credit score and get a low-interest rate, you can choose a shorter tenure for lower interest accumulation. It is always better to be on the safe side.
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4. Existing Liabilities
You have to balance your existing liabilities with your EMIs. If you do not plan this out beforehand, you might miss out on payments, which will affect your credit score. This will narrow down your chances of getting approval for future loan applications along with the financial hassle you will have to go through momentarily.
5. Assess Your Future Finances
If you are a salaried individual who is hoping to get an increment/bonus in the near future, you can pay off your loan earlier by making a lump-sum one-time payment. This might put a little burden on you for the time being, but it will be highly beneficial in the long run.
6. Use a Personal Loan EMI Calculator
If you want to be absolutely sure about your loan tenure, you can use the personal loan EMI calculator. This is a free, online tool which will give you accurate results within seconds.
You can tweak the repayment tenure in the calculator to find your ideal EMI amount. It will also show you the total interest and capital payment for the given tenure.
Calculate Your Personal Loan EMI
Loan Amount
Rate of Interest (P.a)
%
Loan Tenure (Years)
Years
Monthly EMI
0
Total Interest
Total Amount
Importance of Choosing the Right Personal Loan Tenure
If you are looking to apply for a personal loan, you need to select a suitable tenure. The right loan tenure will help you get the maximum benefits of availing financial assistance.
Personal loans usually come with a short loan tenure, unlike secured loans such as home loans, gold loans, etc. That said, the maximum tenure varies across different lenders. Also, being an unsecured loan, personal loans come with comparatively higher interest rates.
The right personal loan tenure will allow you to pay the EMI amount comfortably every month, thereby letting you manage your finances efficiently.
Moreover, timely repayment of the loan amount will assist you in building a positive credit report. This will increase your creditworthiness and allow you to get hassle-free loan approvals at convenient interest rates and loan terms in the future.
Final Word
Personal loans can help individuals handle any financial emergency effortlessly. However, choosing the wrong personal loan tenure will only hurt your finances. So, carefully assess all necessary factors to decide whether you should opt for a shorter tenure or the maximum tenure for a personal loan.
For instant personal loans at attractive interest rates and flexible loan tenure, download the Navi App and apply now!
FAQs
Personal loans are an unsecured form of credit. So, a lender will require an applicant to have a higher credit score of 750 or more for approving a personal loan application. You might not be able to avail of a personal loan with a poor credit score.
If the loan tenure is longer, the interest rate will be higher as you would be a high-risk applicant. The EMI amount will be lower as you are getting more time to repay your loan. Opting for a shorter loan tenure leads to lower interest outgo but higher EMIs.
Usually, age is a crucial factor in determining the loan tenure and EMI amount. Applicants at an early age will get longer tenure which means the EMI amount will be lower. But those borrowing at a later age might get a shorter tenure. As a result, they’ll have to pay higher EMIs.
You need to check with your lender’s eligibility requirements to find out whether you are eligible for a shorter tenure. If you are eligible for a shorter tenure, you can save on your total interest outflow.
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