Small EMIs or Quick Freedom—How to Choose Personal Loan Repayment Tenure?

Personal loans help you receive funds when you're in a financial crisis. You're required to pay-back the borrowed sum with some interest charged and as per the tenure decided. When applying for the loan, you can opt for a longer tenure or a shorter one, based on your personal financial capability. While a longer tenure will keep the Personal Loan EMIs small, a shorter tenure will give you quick freedom from the need of making EMI payments.

Read further to understand choosing maximum or minimum tenure for personal loan repayment along with several other details.

Personal Loan Tenure

Loan tenure refers to the duration for which you need to make equal monthly payments to repay the loan completely. For a personal loan, the tenure can be a few months to several years. The duration is dependent on various factors.

Small EMIs – Longer Personal Loan Repayment Tenure

The longer tenures for personal loan payments are usually 5 to 7 years. These are associated with smaller EMIs, as you get to pay a smaller sum every month to cover the entire repayment amount. The Equated Monthly Instalments are thus less in amount.

This makes monthly payments quite affordable. However, it also makes you pay a higher interest amount over the entire tenure.

There are many more pros and cons of personal loan maximum tenure. While the benefits include less financial pressure and healthy debt-to-income ratio, disadvantages include low flexibility and risk of changing financial circumstances.

Longer EMIs – Shorter Personal Loan Repayment Tenure

Now, choosing quick and early financial freedom will have you pay the entire loan amount with interest within 6 to 12 months. This means, you will be paying heavy EMIs each month to cover the full repayment in months' time.

This option makes your monthly EMIs high, but helps lower your overall cost of the loan.

Other benefits include improved credit score, freed-up borrowing capacity, easier future planning and less chances of risks. Drawbacks include financial strain, greater risk of payment defaults and reduced financial stability.

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Factors Which Decide the Personal Loan Repayment Tenure

When you apply for a personal loan, the loan provider, which can be a bank or an NBFC, will assign you a rate of interest based on various factors. You might be given options to choose from and make negotiations based on your financial strength.

Here are some of the factors that affect the loan tenure:

Interest Rate

One can pre-calculate the value of monthly payments based on the offered rates of interest, then choose the most suitable option. Lenders agree to keep low interest rates when the borrower has high creditworthiness.

Ability to Repay

Factors like your income decide your ability to repay a loan. A good, stable income welcomes lower interest rates, as there is a lower risk of ending up with defaults. Stable income ensures that you do not need compromising your regular financial obligations.

Impact on Long-term Financial Goals

You need to consider your other financial goals also while deciding interest rate and tenure for the current personal loan application. Make sure you do not create a future trouble with current decisions.

EMI Calculators

Personal Loan EMI calculator can also be referred to for making informed decisions. The calculations will affect your decisions, thereby helping you finalize the personal loan tenure.

Expected Funds

Last, one may consider getting quick freedom from EMI payments when you have assured source of funds expected in the near future.

Small EMIs or Quick Freedom? Which Should Be Your Choice?

Based on the factors that impact the tenure and the given pros and cons of both conditions, you need to analyse the varying factors to come to a decision. There is no one right decision for anybody. In fact, it can vary for one person from time to time. It depends on a person's current circumstances, that also involves his or her future obligations and financial expectations. Even the loan providers will assess your situation and give options based on that.

It is important to be careful enough while making financial decisions. Take help like advice from an expert in case of doubt. Take your time, analyse the situation/s and then make the choice.

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