The rate of inflation has touched double-digit figure in the recent time where the price of everything is increasing and the value of purchasing is decreasing money wise. There has also been an enhancement in the lifestyle of the people, who want all the comfort and luxury where it is a lavish house, a car or a recently upgraded gadget. All these things have lead to an increase in the dependency on loans for most of the people. Understanding the requirements and needs of the people lending institutions have come up with different kind of loans in India to make it even easier for the common masses. However, the availability of loans is wide and there are a number of providers too. But, as this is a process of lending money, the lenders always want to be secure about their repayment. Hence, to maximize the security and to minimize the risk lenders looks for certain things known as their eligibility criteria. Age, income, debt to income ratio are some of them.
Apart from the lenders, there are certain things which a borrower should consider which can make the borrowing process easy and they can enjoy a safe borrowing. And Age and tenure are those.
Opting for a loan is a major decision and it needs a big commitment towards it. Hence, it is very important to be well-informed about all the options and choices before you decide to go for it. Among the various factors which lenders check for to approve a loan, the two very significant ones are the applicant’s age and the loan tenure. Apart from the lenders, there are certain things which a borrower should consider the making the borrowing process easy and he/she can enjoy a safe borrowing: own age and tenure of the loan. Lenders focus on tenure and age as these two are the basic factors which determines a borrower’s EMI, eligibility for a loan, and the ability to repay the loan. In this article, we will analyse these two factors in detail.
Why is Age an Important factor for availing a Loan?
If the loan borrower is younger, they can get an extension in their loan tenure. Remember that banks offer maximum loan tenure of 30 years. If the borrower is in their 40s, the only option available in such a case would be to increase their EMI. And doing this can cause a lot of pain especially in times of inflation.
If the loan applicant is younger, a lender believes that he/she has more earning capacity and hence can get an extension on his/her loan tenure. Banks generally offer a maximum loan tenure of 25 years to 30 years. Suppose a loan borrower is in her/his 40s and applied for a loan. In this case, the applicant would not be allowed for a long tenure as he is already in his 40’s and lenders will not be ready to grant a loan for a long tenure. The only option available to the applicant, in this case, is- to go for a short tenure, but this will increase the EMI. Increase in EMI can be difficult to wear if you have a fixed income or when you have so many responsibilities.
This age factor is also equally important for a borrower to consider as – by the time a borrower is in his/her 40’s, the rate of increase in the potential income is much lesser when compared to what one can expect to earn at a young age that is in the mid-20s or early 30s.
Increased loan eligibility is another advantage of applying for a loan at a young age. The potential of increase in salary is the factor behind this. So, lenders can also provide a top-up loan (a loan on top of an already existing loan) to meet personal needs or take care of an increased EMI if at all a borrower faces such a situation.
Why is Tenure an Important Factor?
Tenure is also a very important thing to consider before one opt for a loan. Let us see how-
| LOAN AMOUNT (INR) | INTEREST RATE (%) | TENURE PERIOD (YEAR) | EMI (INR) | TOTAL EMI (INR) | TOTAL PAYABLE AMOUNT |
| 4,00,000 | 9% | 5 | 8,303 | 98,201 | 4,98,201 |
| 4,00,000 | 9% | 7 | 6,436 | 1,40,593 | 5,40,593 |
| 4,00,000 | 9% | 9 | 5,417 | 1,85,054 | 5,85,054 |
| 4,00,000 | 9% | 10 | 5,067 | 2,08,044 | 6,08,044 |
The above table shows the exact effect of tenure on a loan and its repayment.
The conclusion from the table:
The longer the loan tenure is the longer you need to repay the loan
The longer you need to repay the loan, the more the interest amount you need to pay.
Age effect tenure and tenure affects EMI
Thus, if you are young and opt for a loan if possible try to keep the tenure short it might increase your EMI but in long term, it is going to save you a lot of money on interest. When you go for a long tenure you might have to pay lesser EMI comparatively but this will cost you much in long-term.
