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Are you going through financial turmoil and need instant access to corpus funds to emerge from a financial crisis condition? Thinking of asking your relatives for a favour? Don’t! To meet the requirement, you can borrow a personal loan instead and that too at the lowest interest rates from financial institutions. However, before applying for a loan get familiar with some pointers in advance, and one of them is personal loan tenure. Personal loan repayment tenure plays a vital role in determining the interest component since it is payable on the principal amount. Additionally, it affects the monthly installments. The longer the loan tenure, the lesser will be the monthly installments and vice versa. It might sound perplexing, but exploring a bit will make it easier for you. Flick through this blog to know how to choose personal loan tenure judiciously to avail optimum benefits. Before digging deep, let us understand loan tenure meaning in literal terms.
When you apply for a loan, you become liable to repay this amount. The fact is, you can’t pay this amount outright, and thus you are given a specific time for loan repayment. This time frame is termed loan tenure. After understanding the loan tenure meaning, another important point you need to remember is, it plays a crucial role in the computation of monthly EMIs and total payable interest components. Therefore, it becomes essential to select a personal loan tenure sensibly because somehow it increases or decreases the overall payable amount.
Monthly expense is one of the essential factors to consider while deciding on the loan tenure. All you have to do is jot down your monthly expenses and deduct this amount from your monthly income. Now, check the amount you will be left with and how much you need to save for future expenses. The remaining amount will be the one you will pay as your monthly EMI. Choose an installment that easily fits within your budget and never overburden yourself with a higher amount of EMIs.
Refer to the following case scenario for better understanding:
Let’s say hypothetically, Rita decides to apply for a personal loan. Her monthly income is INR 50,000. Her monthly expenses account for INR 28,000. So, the ideal monthly installment amount after keeping plenty of savings will be INR 10,000 to INR 13,000.
No matter if you are a working person or self-employed, the door for salary hike and business expansion unlocks after a certain time. So, if you are expecting a salary hike in the forthcoming time, there will be more room to comply with the escalated EMI amount. In this manner, you will not only pay the amount in less time but also save a hefty amount on interest rates.
Continuing with the aforementioned case scenario:
Let’s hypothetically assume, Rita got a salary hike of INR 10,000. Now, her monthly income is INR 60,000 and expenses are still INR 28,000. Now she can easily pay an EMI up to INR 20,000 without extra burden. This will decrease the personal loan tenure to certain months and at the same time interest component will get reduced.
If you are thinking of applying for a personal loan, remember you can’t escape from the existing liabilities. Other monetary commitments are equally important, and you will have to take them parallelly. These commitments consist of other loans, pending credit card payments, rent, fees associated with education, and much more. Considering all of them will help you choose a monthly repayment amount wisely, which will directly affect the personal loan tenure.
Just make sure that you select a repayment term that balances all such obligations equally and doesn’t lead towards an uncertain situation shortly. It will help you to get a clear idea about everything including monthly installments and loan tenure.
Another significant factor that you cannot skip while determining loan tenure is the applicable interest rate. Count on combinations of interest rates, and know what will be the loan tenure and monthly installments as per the considered personal loan interest rate. The fact is, the longer the repayment tenure, the higher the applicable interest rate will be. No one wants to pay a loan for decades and thus, choose a short repayment tenure, and enjoy the benefit of lower interest rates. Although, certain other factors will be taken into consideration, such as credit score and repayment history.
No one wants to stick to the mathematical formula to compute desirable values, and here is when the EMI calculator comes into play. It is an easy-to-access tool that orients around loan essentials, such as interest rate, tenure, EMI, and principal amount. Take a wise decision by computing values through a loan EMI calculator.
After going through the tips to determine appropriate loan tenure, let’s look into the importance of choosing the right tenure.
A personal loan is one of the most easily accessible financing tools that help in coping with financial turmoil. But you should not make any decision in one go without considering associated vital factors such as personal loan tenure. After going through the above-stated point, it is quite clear that you should keep the period of repayment tenure short since it helps in mitigating the payable interest amount. At the same time, never burden yourself with higher monthly installments, choose an EMI that perfectly fits your monthly budget.
When you apply for a loan, you have to repay the borrowed amount. The lender gives you a specific time to repay the loan and this period of time is termed as loan tenure.
To choose a personal loan tenure, you must count on certain factors such as interest rate, expenses, and future expenses. Additionally, it is recommended to choose a shorter loan tenure that easily fits within your monthly budget.
Short loan tenure is said to be the best loan tenure because neither you have to repay the loan for a longer period of time, nor you have to pay a higher interest rate.
In general, banks provide a personal loan with a repayment tenure of a maximum of 5 years. However, this tenure may vary from one financial lender to another.
It is better to reduce tenure rather than reducing the loan EMI because it will result in an increased interest amount. Free yourself with the loan burden by reducing the loan repayment tenure.
You can easily reduce your personal loan tenure, by sticking to higher monthly installments that easily fit within your monthly budget.
Yes, you can change your loan tenure anytime during the loan repayment period. All you have to do is visit the bank and ask the same from the dedicated person. Although, this might result in increased monthly installments.