How to choose the right Personal Loan tenure?

Author : Shreya Eppili | Published On : 29 Apr 2024

In a financially dynamic world, Personal Loans offer a swift and uncomplicated solution for those seeking funds. This post emphasises the importance of understanding Loan tenures and exploring their impact on payments, interest costs, and overall financial health.

The maximum tenure of loan is the longest period over which you can spread out your repayments. In India, it is five years, but this varies depending on the bank and your creditworthiness. Longer tenures offer the luxury of lower monthly payments, reducing the immediate financial burden.

Meanwhile, the minimum tenure for a Personal Loan is the shortest time frame you can choose to repay it. In India, it can range from three months to a year. Shorter tenures benefit those who want to settle their debts quickly and are comfortable paying higher equated monthly instalments.

Difference between long and short tenures

The minimum and maximum Loan terms are when you repay the borrowed amount. Personal Loan maximum tenure lets you spread the payments over a longer period, like one to five years, resulting in lower monthly payments and higher overall interest. Minimum terms mean you repay the Loan in shorter periods, like three months to a year, leading to higher monthly payments. However, the interest paid is lesser as you clear the principal amount faster.

How to choose the right tenure?

Finding the right tenure is akin to tailoring a bespoke suit that needs to fit your financial profile perfectly. Here is how you can ensure the perfect fit:

     1. Evaluate your monthly budget

Start by realistically assessing your monthly budget to understand how much you can spare for Loan repayments. Ensure you refrain from straining your finances or compromising your needs to repay the amount each month by the due date.

      2. Estimate the total interest payout

Use online EMI calculators to project your total interest payouts over various tenures. This will help you find the sweet spot between affordable EMIs and reasonable interest payouts. If you want to assess your capacity, use the online EMI calculator to get an estimate of your repayment amount.

      3. Align it with your financial goals

If clearing debt is your priority, targeting a shorter tenure can help you become debt-free quickly. For long-term savers, longer tenures may help balance investments and personal Loan repayments.

      4. Cushioning for financial emergencies

Opting for a tenure that allows financial breathing room for unexpected expenses is always ideal. It should not leave you stretched thin in case of emergency. You should be able to cope with financial emergencies if they arise during the Personal Loan tenure.

      5. Consult with financial planners

If in doubt, speak to financial planners for insights. They can guide you towards a tenure that complements your landscape.

Conclusion

By carefully considering these dynamics, you can choose a tenure that optimises monthly affordability and total interest cost. If you are wise enough, the financial tide will flow in your favour.