Why Should You Choose Personal Loans for a Shorter Tenor?

With the growing economy, the cost of almost all the commodities has gone up. Sometimes, it becomes difficult for a common man with an average monthly income to manage all the extra expenses that are necessary. If there is an urgent need of money and you do not have any money in your bank account, then you can always ask banks and financial institutions for some financial aid.

The banks and financial institutions provide various types of financial aids like Personal Loans, home loans, etc. to people who urgently need the funds. Personal Loans are the most preferred types of loans since the money that you avail from a personal loan can be used in any way you want. The money can be used to fund your child’s higher education, to cover marriage expenses, to purchase a car or even to renovate your home. There are two types of Personal Loans: secured Personal Loans and Unsecured Personal Loans. 

Must Read: How Can a Personal Loan Help You to Consolidate Your Debts?

If you opt for a Personal Loan then you will have to keep any of your assets with the bank as collateral. The asset that you keep as a collateral can be anything that you own like your house, gold, fixed deposit, etc. Also if you opt for a secured Personal Loan, you will have to pay a lesser rate of interest comparatively. In secured Personal Loans, the banks have an assurance for the money they are lending you and if you fail to repay your debt then the banks can seize the collateral to cover their loss. 

In an unsecured Personal Loan, you do not have to keep any collateral with the bank and this type of loan is a risk for the banks. As the banks do not have any collateral, they will not be able to seize any of your assets to cover their loss. 

The banks check your eligibility before they approve your Personal Loan application. The banks have certain criteria like which you have to fulfill for your Personal Loan application to get accepted. One of the most important documents that the banks check is your CIBIL score. The banks check your CIBIL score to check your creditworthiness and to see if you can repay your loan debt. If you have a low CIBIL score, then your home loan application might get rejected. On the other hand, if you have a high CIBIL score, your loan application will get approved and it will be processed faster. The other things that banks check to see if you are eligible are your financial statements, your job stability, your liabilities, etc. If they find anything wrong with your application, then your loan application will be rejected. 

When your loan application process is approved and once the banks start the disbursement of the loan, you will need to repay the loan amount every month in the form of Equated Monthly Installments (EMIs). The EMI is dependent on your financial stability and the tenor of your Personal Loan. The longer your Personal Loan tenor, lower the interest rate you’ll have to pay and vice versa. The tenor of your Personal Loan also depends on your repayment ability and your financial needs. People avail Personal Loans to meet the short term requirements. Hence the maximum tenor of a Personal Loan is only 5 years. So it is impossible to avail a Personal Loan for a tenor of 10 years.

Before you settle on one bank or financial institution, it is crucial that you do a thorough research and check the policies of all the banks and financial institutions. It is necessary that you choose a bank that is offering you the lower Personal Loan interest Rate as that will help you save money in the long run. Taking a Personal Loan is a big decision, one that will affect your monthly financials for the entire tenor of your loan so you need to choose carefully.

Must Read: Pros And Cons Of Instant Personal Loan