Deciding on the Tenure of Repayment for A Personal Loan - Loan Trivia


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Monday 30 April 2018

Deciding on the Tenure of Repayment for A Personal Loan

Among the popular and most useful debt instruments offered by lending institutions, Personal Loans top the list. The reason behind this is the ease of availing them and their flexibility in terms of the usage. In most cases,
Personal Loans have no collateral requirement- this means that the applicant need not furnish any collateral or mortgage security to avail this loan. Consequently, their rates of interest are higher as compared to secured loans.

When availing a Personal Loan, a lot of focus goes towards the cost of borrowing, i.e. the rate of interest. In addition to the rate of interest, the tenure of repayment of the loan is also important as it affects the affordability of the Personal Loan.This tenure is nothing but the timeline over which the amount borrowed, along with the interest charged by the bank or Non-Banking Financial Company (NBFC) is repaid through Equated Monthly Instalments (EMIs). This tenure is subject to the policies of the lender and the loan applicant can opt for the most convenient and appropriate one after considering his/her repayment capacity, monthly income, cash outflow and future expenses.

Opting for a Shorter Tenure:
Choosing a shorter tenure of repayment means that the loan gets cleared off sooner and the overall interest outgo is reduced. However, the monthly EMI to be paid increases. In such cases, it needs to be ensured that the borrower has sufficient financial
bandwidth to pay the EMI. Shorter tenures are ideal when he/she has major planned expenses in the near future for which a loan might be required.

Opting for a Longer Tenur:
Longer repayment tenures reduce the monthly burden of paying a large EMI. Individuals who have lesser income and no major planned expenses as such in the coming future should opt for longer tenures for their Personal Loan.

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