A personal loan is a great choice for you as a borrower if you are looking for a faster loan disbursement with zero margins or collateral requirement, offering no restriction on the end usage of the loan proceeds at minimal documentation. Most NBFCs and banks offer personal loans with a loan tenure of as high as 5 years, with few lenders providing a maximum repayment tenure of 7 years. SBI personal loan for govt Employee, SBI pre-approved personal loans, Punjab National Bank personal loans and Tata Capital are a few of the lenders offering a personal loan of over 5 years tenure. Note that even government employees can avail of personal loan from HDFC for a repayment tenure of as high as six years. There are various parameters factored in for determining whether to provide a higher repayment tenure. Repayment length, rate of interest and own financial stability – everything is factored in.
Listed here are some of the important reasons for considering a higher repayment tenure for a personal loan –
Lower EMI outflow
By extending your repayment tenure, you can lower your monthly instalments and save more money each month. Also, this will make your personal loan EMI affordable over the long term. You can later pre-close once your finances stabilise with surplus funds as the interest constituent enhances on opting for a higher repayment tenure to reduce your EMI, so prepaying your personal loan before the repayment tenure would allow you to save a lot on the overall interest cost of your personal loan.
Option to select a higher loan proceeds
Based on your DTI or debt-to-income ratio, a higher repayment tenure allows you to avail a bigger loan amount. If you hold a higher income, you can consider opting for a loan proceed that is more than what you normally may have qualified for to optimise your EMI. Doing so will maximise your savings monthly as EMI will be lower, and you may be able to close your loan even sooner.
When approving your personal loan application, many financial institutions prefer a DTI (debt-to-income ratio) of about 40 per cent to 50 per cent. In simpler words, the debt payments that you make monthly, past due EMIs and your present EMI must be 40 per cent to 50 per cent of your monthly income. Your debt-to-income ratio may be lowered by selecting a higher loan tenure as it enhances your potential to make the payments, allowing you to avail of a bigger loan.
Also Check: SBI pre-approved personal loans
Higher chances to prepay your personal loan
Just by extending your loan repayment tenure, you have a higher chance of loan prepayment before reaching an advanced repayment stage. A higher payback period assists you in forming savings, permitting you to repay more of your personal loan before the due date.
Most personal loans come with a lock-in period post which you may prepay a portion of the balance. As an outcome, loan proceeds may be lower for the rest of the tenure, and you may conveniently pay the same back with a lower EMI. The majority of lenders may levy a prepayment charge. Thus, you must think of such fees before you pay off your personal credit option early.
Take care of your various other expenditures comfortably.
When you make a payment of a lower EMI amount, you free up specific cash for other vital expenditures for your business and family. Doing this will assist you in managing your expenses better and enhance your monthly savings. It is crucial for better management of debt. You must understand that a personal loan might not be your only sole obligation, you may have a car loan, home loan and various other expenditures, which you must meet every month. If you default on any of such loans, it may result in high-interest accrual and other fees. This is how many of the borrowers fall into the debt trap. Thus, choosing a higher repayment tenure permits you to disseminate your payments well without impacting your cash inflow in a month.
Assists improve your credit profile.
When you pay loan EMIs on time, it creates a positive impact on your repayment history, adding a few points to your score. It assists you in getting a better deal on various other loans in future.
Are there any disadvantages to selecting a higher repayment tenure on a personal loan?
High-interest amount burden – When you opt for a higher repayment tenure, you require paying more interest for a higher period, which results in a higher interest burden. If you do not prepay your loan, you might end up paying a higher interest constituent than the original loan proceeds.
Impacts your chances of availing of other loans – As a loan increases your debt-to-income ratio, it may impact your chances of availing of other loans till you completely clear the existing one.
In conclusion
Zeroing on the repayment tenure of your personal loan is important for a good financial future. By selecting a higher repayment tenure, you may spread your repayments well without impacting your monthly cash inflow. Moreover, when you pay a lower EMI, you tend to free up cash for various other imminent expenditures of your business or family. It helps you to manage your expenditures well and enhance your monthly savings.
Frequently asked questions about selecting a higher repayment on a personal loan.
What is the usual repayment tenure for a personal loan?
For a personal loan, generally, the repayment tenure available is for a period of 5 years. Few lenders, however, may offer a higher repayment tenure of 7 years.
Is your rate of interest decided depending on your repayment tenure?
No, your interest rate will stay the same regardless of your tenure. However, with a higher repayment tenure, you will pay a higher interest constituent.
How can a higher repayment tenure on a personal loan impact your credit profile?
With a higher loan tenure, there are lower chances of default, so your score will not be impacted.
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